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OLD REPUBLIC INTERNATIONAL CORP - Quarter Report: 2018 June (Form 10-Q)



 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
 
FORM 10-Q
[x]
Quarterly report pursuant to section 13 or 15(d) of the Security Exchange Act of 1934
 
for the quarterly period ended: June 30, 2018 or
 
 
[ ]
Transition report pursuant to section 13 or 15(d) of the Security Exchange Act of 1934
Commission File Number:
001-10607
 
OLD REPUBLIC INTERNATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
 
No. 36-2678171
(State or other jurisdiction of
 
(IRS Employer Identification No.)
incorporation or organization)
 
 
307 North Michigan Avenue, Chicago, Illinois
 
60601
(Address of principal executive office)
 
(Zip Code)

Registrant's telephone number, including area code: 312-346-8100

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes: x No: o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes: x No: o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer", "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer x
Accelerated filer o
 
 
Non-accelerated filer    o (Do not check if a smaller reporting company)
 
 
 
Smaller reporting company o
 
 
 
Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).Yes: o No: x
Class
 
Shares Outstanding
June 30, 2018
Common Stock / $1 par value
 
302,459,507


There are 53 pages in this report





OLD REPUBLIC INTERNATIONAL CORPORATION
 
Report on Form 10-Q / June 30, 2018
 
INDEX
 
 
 
 
 
 
 
PAGE NO.
 
 
PART I
FINANCIAL INFORMATION:
 
 
 
 
 
CONSOLIDATED BALANCE SHEETS
3
 
 
 
 
CONSOLIDATED STATEMENTS OF INCOME
4
 
 
 
 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
5
 
 
 
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
6
 
 
 
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7 - 18
 
 
 
 
MANAGEMENT ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS
19 - 49
 
 
 
 
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
50
 
 
 
 
CONTROLS AND PROCEDURES
50
 
 
 
PART II
OTHER INFORMATION:
 
 
 
 
 
ITEM 1 - LEGAL PROCEEDINGS
51
 
 
 
 
ITEM 1A - RISK FACTORS
51
 
 
 
 
ITEM 6 - EXHIBITS
51
 
 
SIGNATURE
52
 
 
EXHIBIT INDEX
53





2



Old Republic International Corporation and Subsidiaries
Consolidated Balance Sheets
($ in Millions, Except Share Data)
 
(Unaudited)
 
 
 
June 30,
 
December 31,
 
2018
 
2017
Assets
 
 
 
Investments:
 
 
 
Available for sale:
 
 
 
Fixed maturity securities (at fair value) (amortized cost: $8,087.9 and $8,162.2)
$
7,994.6

 
$
8,282.3

Short-term investments (at fair value which approximates cost)
516.9

 
670.1

Miscellaneous investments
29.2

 
29.1

Total
8,540.8

 
8,981.6

Held to maturity:
 
 
 
Fixed maturity securities (at amortized cost) (fair value: $1,034.3 and $1,069.2)
1,056.2

 
1,067.4

Equity securities (at fair value) (cost: $2,746.5 and $2,629.9)
3,271.4

 
3,265.5

Other investments
3.6

 
3.3

Total investments
12,872.1

 
13,318.0

Other Assets:
 
 
 
Cash
107.9

 
125.9

Securities and indebtedness of related parties
25.5

 
12.8

Accrued investment income
92.0

 
92.4

Accounts and notes receivable
1,680.2

 
1,469.7

Prepaid federal income taxes
114.3

 
114.3

Reinsurance balances and funds held
158.2

 
141.6

Reinsurance recoverable: Paid losses
71.7

 
60.5

 Policy and claim reserves
3,558.5

 
3,311.3

Deferred policy acquisition costs
312.6

 
297.8

Sundry assets
460.9

 
458.8

Total Other Assets
6,582.1

 
6,085.5

Total Assets
$
19,454.2

 
$
19,403.5

Liabilities, Preferred Stock, and Common Shareholders' Equity
 
 
 
Liabilities:
 
 
 
Losses, claims, and settlement expenses
$
9,392.5

 
$
9,237.6

Unearned premiums
2,229.2

 
1,971.5

Other policyholders' benefits and funds
203.7

 
204.7

Total policy liabilities and accruals
11,825.5

 
11,413.9

Commissions, expenses, fees, and taxes
493.3

 
547.7

Reinsurance balances and funds
745.3

 
566.9

Federal income tax payable: Current
8.0

 
6.5

                                              Deferred
33.7

 
100.5

Debt
974.4

 
1,448.7

Sundry liabilities
270.3

 
585.8

Commitments and contingent liabilities

 

Total Liabilities
14,350.8

 
14,670.2

Preferred Stock (1)

 

Common Shareholders' Equity:
 
 
 
Common stock (1)
302.4

 
269.2

Additional paid-in capital
1,272.2

 
815.2

Retained earnings
3,797.7

 
3,206.9

Accumulated other comprehensive income (loss)
(202.6
)
 
474.2

Unallocated ESSOP shares (at cost)
(66.4
)
 
(32.4
)
Total Common Shareholders' Equity
5,103.4

 
4,733.3

Total Liabilities, Preferred Stock and Common Shareholders' Equity
$
19,454.2

 
$
19,403.5

________

(1)
At June 30, 2018 and December 31, 2017, there were 75,000,000 shares of $0.01 par value preferred stock authorized, of which no shares were outstanding. As of the same dates, there were 500,000,000 shares of common stock, $1.00 par value, authorized, of which 302,459,507 and 269,238,727 were issued as of June 30, 2018 and December 31, 2017, respectively. At June 30, 2018 and December 31, 2017, there were 100,000,000 shares of Class B Common Stock, $1.00 par value, authorized, of which no shares were issued.

See accompanying Notes to Consolidated Financial Statements.

3



Old Republic International Corporation and Subsidiaries
Consolidated Statements of Income (Unaudited)
($ in Millions, Except Share Data)
 
Quarters Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2018
 
2017
 
2018
 
2017
Revenues:
 
 
 
 
 
 
 
Net premiums earned
$
1,294.7

 
$
1,239.2

 
$
2,525.8

 
$
2,440.6

Title, escrow, and other fees
125.5

 
123.5

 
224.8

 
223.2

Total premiums and fees
1,420.2

 
1,362.8

 
2,750.6

 
2,663.9

Net investment income
106.9

 
101.0

 
212.7

 
202.3

Other income
30.1

 
28.2

 
60.7

 
55.8

Total operating revenues
1,557.3

 
1,492.1

 
3,024.2

 
2,922.1

Investment gains (losses):
 
 
 
 
 
 
 
Realized from actual sale transactions
32.0

 
6.8

 
47.5

 
21.7

Unrealized from change in fair value of
 
 
 
 
 
 
 
equity securities
41.3

 

 
(110.6
)
 

Unrealized from impairments

 

 

 

Total realized and unrealized investment
 
 
 
 
 
 
 
gains (losses)
73.3

 
6.8

 
(63.1
)
 
21.7

Total revenues
1,630.7

 
1,499.0

 
2,961.1

 
2,943.8

 
 
 
 
 
 
 
 
Benefits, Claims and Expenses:
 
 
 
 
 
 
 
Benefits, claims and settlement expenses
601.0

 
608.8

 
1,191.2

 
1,168.1

Dividends to policyholders
6.3

 
5.9

 
10.1

 
10.1

Underwriting, acquisition, and other expenses
766.6

 
721.7

 
1,494.7

 
1,422.0

Interest and other charges
10.0

 
16.0

 
24.4

 
32.5

Total expenses
1,384.0

 
1,352.7

 
2,720.5

 
2,632.8

Income (loss) before income taxes (credits)
246.6

 
146.3

 
240.6

 
311.0

 
 
 
 
 
 
 
 
Income Taxes (Credits):
 
 
 
 
 
 
 
Current
35.4

 
33.4

 
61.4

 
85.4

Deferred
13.4

 
11.1

 
(22.7
)
 
10.8

Total
48.8

 
44.6

 
38.7

 
96.2

 
 
 
 
 
 
 
 
Net Income
$
197.7

 
$
101.6

 
$
201.8

 
$
214.7

 
 
 
 
 
 
 
 
Net Income Per Share:
 
 
 
 
 
 
 
Basic
$
.66

 
$
.39

 
$
.70

 
$
.82

Diluted
$
.66

 
$
.35

 
$
.68

 
$
.74

 
 
 
 
 
 
 
 
Average shares outstanding: Basic
299,738,944

 
261,080,770

 
289,117,369

 
260,973,860

Diluted
301,075,469

 
298,313,246

 
301,329,249

 
298,367,533

 
 
 
 
 
 
 
 
Dividends Per Common Share:
 
 
 
 
 
 
 
Cash
$
.1950

 
$
.1900

 
$
.3900

 
$
.3800



See accompanying Notes to Consolidated Financial Statements.

4



Old Republic International Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income (Unaudited)
($ in Millions)
 
Quarters Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2018
 
2017
 
2018
 
2017
Net Income As Reported
$
197.7

 
$
101.6

 
$
201.8

 
$
214.7

 
 
 
 
 
 
 
 
Other comprehensive income (loss):
 
 
 
 
 
 
 
Unrealized gains (losses) on securities not included
 
 
 
 
 
 
 
in the statement of income:
 
 
 
 
 
 
 
Unrealized gains (losses) on securities before
 
 
 
 
 
 
 
reclassifications
(62.9
)
 
15.7

 
(211.6
)
 
95.8

Amounts reclassified as investment gains
 
 
 
 
 
 
 
from sales in the statements of income
(1.2
)
 
(6.8
)
 
(1.7
)
 
(21.7
)
Pretax unrealized gains (losses) on securities
(64.1
)
 
8.8

 
(213.3
)
 
74.1

Deferred income taxes (credits)
(13.5
)
 
3.2

 
(44.8
)
 
25.9

Net unrealized gains (losses) on securities, net of tax
(50.6
)
 
5.6

 
(168.4
)
 
48.1

Defined benefit pension plans:
 
 
 
 
 
 
 
Net pension adjustment before reclassifications

 

 

 

Amounts reclassified as underwriting, acquisition,
 
 
 
 
 
 
 
and other expenses in the statements of income
.8

 
.1

 
1.6

 
.2

Net adjustment related to defined benefit
 
 
 
 
 
 
 
pension plans
.8

 
.1

 
1.6

 
.2

Deferred income taxes (credits)
.1

 

 
.3

 

Net adjustment related to defined benefit pension
 
 
 
 
 
 
 
plans, net of tax
.6

 
.1

 
1.2

 
.1

Foreign currency translation and other adjustments
(3.6
)
 
1.7

 
(7.3
)
 
3.3

Net adjustments
(53.6
)
 
7.5

 
(174.6
)
 
51.6

Comprehensive Income (Loss)
$
144.1

 
$
109.1

 
$
27.2

 
$
266.4




See accompanying Notes to Consolidated Financial Statements.

5



Old Republic International Corporation and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
($ in Millions)
 
 
Six Months Ended
 
 
June 30,
 
 
2018
 
2017
Cash flows from operating activities:
 
 
 
 
Net income
 
$
201.8

 
$
214.7

Adjustments to reconcile net income to
 
 
 
 
net cash provided by operating activities:
 
 
 
 
Deferred policy acquisition costs
 
(14.8
)
 
(21.0
)
Premiums and other receivables
 
(210.4
)
 
(215.1
)
Unpaid claims and related items
 
93.5

 
73.3

Unearned premiums and other policyholders' liabilities
 
70.9

 
118.0

Income taxes
 
(20.7
)
 
(1.6
)
Prepaid federal income taxes
 

 
(31.8
)
Reinsurance balances and funds
 
151.4

 
130.6

Realized investment (gains) losses from actual sale transactions
 
(47.5
)
 
(21.7
)
Unrealized investment (gains) losses from changes in fair value
 
 
 
 
of equity securities
 
110.6

 

Accounts payable, accrued expenses and other
 
(47.4
)
 
13.7

Total
 
287.3

 
259.0

 
 
 
 
 
Cash flows from investing activities:
 
 
 
 
Fixed maturity securities:
 
 
 
 
Available for sale:
 
 
 
 
Maturities and early calls
 
473.8

 
387.3

Sales
 
181.5

 
300.4

Sales of:
 
 
 
 
Equity securities
 
278.6

 
40.5

Other - net
 
8.2

 
21.1

Purchases of:
 
 
 
 
Fixed maturity securities:
 
 
 
 
Available for sale
 
(600.6
)
 
(563.4
)
Held to maturity
 

 
(107.6
)
Equity securities
 
(350.8
)
 
(262.0
)
Other - net
 
(23.6
)
 
(29.9
)
Net decrease (increase) in short-term investments
 
152.8

 
95.5

Other - net
 
(.7
)
 

Total
 
119.2

 
(118.0
)
 
 
 
 
 
Cash flows from financing activities:
 
 
 
 
Issuance of common shares
 
9.7

 
12.4

Redemption of debentures and notes
 
(4.7
)
 
(3.9
)
Purchase of unallocated common shares by ESSOP
 
(37.4
)
 

Dividends on common shares (Including a special dividend paid in January 2018)
 
(382.3
)
 
(98.8
)
Other - net
 
(9.8
)
 
(1.2
)
Total
 
(424.6
)
 
(91.5
)
 
 
 
 
 
Increase (decrease) in cash
 
(18.0
)
 
49.3

Cash, beginning of period
 
125.9

 
145.7

Cash, end of period
 
$
107.9

 
$
195.1

 
 
 
 
 
Supplemental cash flow information:
 
 
 
 
Cash paid (received) during the period for: Interest
 
$
29.7

 
$
31.2

                                                                         Income taxes
 
$
59.6

 
$
97.9



See accompanying Notes to Consolidated Financial Statements.

6



OLD REPUBLIC INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
($ in Millions, Except Share Data)

1. Accounting Policies and Basis of Presentation:

The accompanying consolidated financial statements have been prepared in conformity with the Financial Accounting Standards Board's ("FASB") Accounting Standards Codification ("ASC") of accounting principles generally accepted in the United States of America ("GAAP"). These interim financial statements should be read in conjunction with these notes and those included in the Company's 2017 Annual Report on Form 10-K incorporated herein by reference.

Pertinent accounting and disclosure pronouncements issued from time to time by the FASB are adopted by the Company as they become effective and are further discussed below.

a) Effective January 1, 2018, the Company adopted FASB guidance on the recognition and measurement of financial instruments. The impact of the Company’s adoption of this pronouncement and the related interim disclosure requirements have been included in the pertinent note herein.

b) In addition, effective January 1, 2018, the Company adopted the FASB's comprehensive revenue recognition standard which applies to contracts with customers, except for those that fall within the scope of other standards, such as insurance contracts. The Company’s adoption of this standard did not have an effect on its insurance contract revenues, and based on its evaluation of certain less significant revenue streams generated from contracts with customers, does not have a material impact on the consolidated financial statements taken as a whole.

c) Effective January 1, 2017, the Company adopted new FASB guidance on accounting for share-based payment awards without material impact on the consolidated financial statements.

d) In February 2016, the FASB issued guidance on lease accounting which will be effective in 2019 and requires balance sheet recognition of all leases with a term greater than 12 months.

e) In June 2016, the FASB issued guidance on accounting for credit losses on financial instruments which will be effective in 2020. The guidance will require immediate recognition of expected credit losses for (1) certain financial instruments including reinsurance recoverables, (2) held to maturity securities, (3) accounts and notes receivable and (4) modification of the impairment model for available for sale fixed maturity securities.

The Company is currently evaluating the foregoing lease and credit loss guidance to determine the potential impact of its adoption on its consolidated financial statements.

The financial accounting and reporting process relies on estimates and on the exercise of judgment. In the opinion of management all adjustments consisting only of normal recurring accruals necessary for a fair presentation of interim periods' results and financial position have been recorded. Amounts shown in the consolidated financial statements and applicable notes are stated (except as otherwise indicated and as to share data) in millions, which amounts may not add to totals shown due to truncation. Necessary reclassifications are made in prior periods' financial statements whenever appropriate to conform to the most current presentation.

2. Common Share Data:

Earnings Per Share - Consolidated basic earnings per share excludes the dilutive effect of common stock equivalents and is computed by dividing income available to common stockholders by the weighted-average number of common shares actually outstanding for the quarterly and year-to-date periods. Diluted earnings per share are similarly calculated with the inclusion of dilutive common stock equivalents. The following table provides a reconciliation of net income and the number of shares used in basic and diluted earnings per share calculations.

7



 
Quarters Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2018
 
2017
 
2018
 
2017
Numerator:
 
 
 
 
 
 
 
Net income
$
197.7

 
$
101.6

 
$
201.8

 
$
214.7

Numerator for basic earnings per share -
 
 
 
 
 
 
 
income available to common stockholders
197.7

 
101.6

 
201.8

 
214.7

Adjustment for interest expense incurred on
 
 
 
 
 
 
 
assumed conversion of convertible notes

 
3.6

 
3.1

 
7.3

Numerator for diluted earnings per share -
 
 
 
 
 
 
 
income available to common stockholders
 
 
 
 
 
 
 
after assumed conversion of convertible notes
$
197.7

 
$
105.2

 
$
204.9

 
$
222.0

 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
Denominator for basic earnings per share -
 
 
 
 
 
 
 
weighted-average shares (a)
299,738,944

 
261,080,770

 
289,117,369

 
260,973,860

Effect of dilutive securities - stock based
 
 
 
 
 
 
 
   compensation awards
1,336,525

 
1,458,135

 
1,385,141

 
1,630,905

Effect of dilutive securities - convertible senior notes

 
35,774,341

 
10,826,739

 
35,762,768

Denominator for diluted earnings per share -
 
 
 
 
 
 
 
adjusted weighted-average shares
 
 
 
 
 
 
 
and assumed conversion of convertible notes (a)
301,075,469

 
298,313,246

 
301,329,249

 
298,367,533

Earnings per share: Basic
$
.66

 
$
.39

 
$
.70

 
$
.82

Diluted
$
.66

 
$
.35

 
$
.68

 
$
.74

 
 
 
 
 
 
 
 
Anti-dilutive common stock equivalents
 
 
 
 
 
 
 
excluded from earnings per share computations:
 
 
 
 
 
 
 
Stock based compensation awards
1,539,500

 
1,403,500

 
1,539,500

 

Convertible senior notes

 

 

 

Total
1,539,500

 
1,403,500

 
1,539,500

 

__________

(a) In calculating earnings per share, pertinent accounting rules require that common shares owned by the Company's Employee Savings and Stock Ownership Plan that are not yet allocated to participants in the plan be excluded from the calculation. However, such shares are issued and outstanding and have the same voting and other rights applicable to all common shares.

3. Investments:

The Company may classify its fixed maturity invested assets in terms of those assets relative to which it either (1) has the positive intent and ability to hold until maturity, (2) has available for sale or (3) has the intention of trading. As of June 30, 2018 and December 31, 2017, the majority of the Company's fixed maturity invested assets were classified as "available for sale."

Fixed maturity securities classified as "available for sale" are included at fair value with changes in such values, net of deferred income taxes, reflected directly in shareholders' equity. Fixed maturity securities classified as "held to maturity" are carried at amortized cost. Effective January 1, 2018, preferred and common stocks (equity securities) are included at fair value with changes in such values reflected as unrealized investment gains (losses) in the consolidated statements of income. Fair values for fixed maturity securities and equity securities are based on quoted market prices or estimates using values obtained from recognized independent pricing services.

The Company reviews the status and fair value changes of each of its fixed maturity investments on at least a quarterly basis during the year, and estimates of other-than-temporary impairments ("OTTI") in the portfolio's value are evaluated and established at each quarterly balance sheet date. In reviewing investments for OTTI, the Company, in addition to a security's market price history, considers the totality of such factors as the issuer's operating results, financial condition and liquidity, its ability to access capital markets, credit rating trends, most current audited financial statements, industry and securities markets conditions, and analyst expectations to reach its conclusions. Sudden fair value declines caused by such adverse developments as newly emerged or imminent bankruptcy filings, issuer default on significant obligations, or reports of financial accounting developments that bring into question the validity of the issuer's previously reported earnings or financial condition, are recognized as realized losses as soon as credible publicly available information emerges to confirm such developments. In the event the Company's estimate of OTTI is insufficient at any point in time, future periods' net income (loss) would be adversely affected by the recognition of additional impairment losses, but its financial position would not necessarily be affected adversely inasmuch as such losses, or a portion of them, could have been recognized previously as unrealized losses directly in shareholders' equity. The Company recognized no OTTI adjustments for the quarters and six months ended June 30, 2018 and 2017.


8



The amortized cost and estimated fair values by type and contractual maturity of fixed maturity securities are shown in the following tables. Expected maturities will differ from contractual maturities since borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
Fixed Maturity Securities by Type:
 
 
 
 
 
 
 
June 30, 2018:
 
 
 
 
 
 
 
Available for sale:
 
 
 
 
 
 
 
U.S. & Canadian Governments
$
1,456.6

 
$
1.5

 
$
27.8

 
$
1,430.3

Corporate
6,631.3

 
43.7

 
110.8

 
6,564.2

 
$
8,087.9

 
$
45.3

 
$
138.7

 
$
7,994.6

 
 
 
 
 
 
 
 
Held to maturity:
 
 
 
 
 
 
 
Tax-exempt
$
1,056.2

 
$
.9

 
$
22.7

 
$
1,034.3

 
 
 
 
 
 
 
 
December 31, 2017:
 
 
 
 
 
 
 
Available for sale:
 
 
 
 
 
 
 
U.S. & Canadian Governments
$
1,554.3

 
$
6.5

 
$
8.7

 
$
1,552.2

Corporate
6,607.8

 
140.8

 
18.6

 
6,730.0

 
$
8,162.2

 
$
147.4

 
$
27.3

 
$
8,282.3

 
 
 
 
 
 
 
 
Held to maturity:
 
 
 
 
 
 
 
Tax-exempt
$
1,067.4

 
$
10.0

 
$
8.3

 
$
1,069.2


 
Amortized
Cost
 
Estimated
Fair
Value
Fixed Maturity Securities Stratified by Contractual Maturity at June 30, 2018:
 
 
 
Available for sale:
 
 
 
Due in one year or less
$
658.6

 
$
661.7

Due after one year through five years
4,392.1

 
4,362.6

Due after five years through ten years
2,936.3

 
2,865.1

Due after ten years
100.8

 
105.0

 
$
8,087.9

 
$
7,994.6

 
 
 
 
Held to maturity:
 
 
 
Due in one year or less
$

 
$

Due after one year through five years
130.7

 
128.8

Due after five years through ten years
917.3

 
897.4

Due after ten years
8.1

 
8.1

 
$
1,056.2

 
$
1,034.3


The following tables reflect the Company's gross unrealized losses and fair value, aggregated by category and length of time that individual available for sale and held to maturity fixed maturity securities have been in an unrealized loss position. Fair value and issuer's cost comparisons follow:

9



 
12 Months or Less
 
Greater than 12 Months
 
Total
 
Fair
Value
 
Unrealized Losses
 
Fair
Value
 
Unrealized Losses
 
Fair
Value
 
Unrealized Losses
June 30, 2018:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed Maturity Securities:
 
 
 
 
 
 
 
 
 
 
 
Available for sale:
 
 
 
 
 
 
 
 
 
 
 
  U.S. & Canadian Governments
$
764.2

 
$
17.7

 
$
379.8

 
$
10.0

 
$
1,144.1

 
$
27.8

  Corporate
3,772.4

 
84.1

 
653.7

 
26.7

 
4,426.2

 
110.8

 
$
4,536.7

 
$
101.8

 
$
1,033.6

 
$
36.8

 
$
5,570.4

 
$
138.7

 
 
 
 
 
 
 
 
 
 
 
 
Number of available for sale
 
 
 
 
 
 
 
 
 
 
 
securities in unrealized
 
 
 
 
 
 
 
 
 
 
 
loss position
 
 
907

 
 
 
204

 
 
 
1,111

 
 
 
 
 
 
 
 
 
 
 
 
Held to maturity:
 
 
 
 
 
 
 
 
 
 
 
  Tax-exempt
$
454.4

 
$
6.3

 
$
402.9

 
$
16.3

 
$
857.4

 
$
22.7

 
 
 
 
 
 
 
 
 
 
 
 
Number of held to maturity
 
 
 
 
 
 
 
 
 
 
 
securities in unrealized
 
 
 
 
 
 
 
 
 
 
 
loss position
 
 
157

 
 
 
142

 
 
 
299

 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2017:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed Maturity Securities:
 
 
 
 
 
 
 
 
 
 
 
Available for sale:
 
 
 
 
 
 
 
 
 
 
 
  U.S. & Canadian Governments
$
1,080.9

 
$
8.6

 
$
29.5

 
$

 
$
1,110.5

 
$
8.7

  Corporate
1,660.9

 
15.0

 
145.9

 
3.6

 
1,806.9

 
18.6

 
$
2,741.9

 
$
23.6

 
$
175.5

 
$
3.7

 
$
2,917.4

 
$
27.3

 
 
 
 
 
 
 
 
 
 
 
 
Number of available for sale
 
 
 
 
 
 
 
 
 
 
 
securities in unrealized
 
 
 
 
 
 
 
 
 
 
 
loss position
 
 
526

 
 
 
56

 
 
 
582

 
 
 
 
 
 
 
 
 
 
 
 
Held to maturity:
 
 
 
 
 
 
 
 
 
 
 
  Tax-exempt
$
321.9

 
$
4.8

 
$
134.7

 
$
3.4

 
$
456.6

 
$
8.3

 
 
 
 
 
 
 
 
 
 
 
 
Number of held to maturity
 
 
 
 
 
 
 
 
 
 
 
securities in unrealized
 
 
 
 
 
 
 
 
 
 
 
loss position
 
 
112

 
 
 
48

 
 
 
160


In the above tables the unrealized losses on fixed income securities are primarily deemed to reflect changes in the interest rate environment. As part of its assessment of other-than-temporary impairments, the Company considers its intent to continue to hold, and the likelihood that it will not be required to sell investment securities in an unrealized loss position until cost recovery, principally on the basis of its asset and liability maturity matching procedures.

A summary of the Company's equity securities holdings follows:
 

Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
Equity Securities:
 
 
 
 
 
 
 
June 30, 2018
$
2,746.5

 
$
573.5

 
$
48.5

 
$
3,271.4

December 31, 2017
$
2,629.9

 
$
658.8

 
$
23.2

 
$
3,265.5


At December 31, 2017, the Company held 9 available for sale equity securities that had been in an unrealized loss position for 12 months or less. Effective January 1, 2018, the Company adopted a new accounting standard which requires the recognition of changes in fair value of equity securities in net income. The effect is shown in the accompanying consolidated financial statements. The cumulative-effect adjustment resulting from the adoption of the new standard was to reclassify $502.1 from accumulated other comprehensive income to retained earnings; total shareholders' equity remained unchanged. During the quarter and first six months of 2018, the Company recognized unrealized investment gains (losses) of $41.3 and $(110.6) emanating from changes in the fair value of equity securities in the consolidated

10



statements of income. Of these amounts, $59.2 and $(69.1) for the quarter and first six months of 2018, respectively, was related to changes in the fair value of equity securities still held at June 30, 2018.

Fair Value Measurements - Fair value is defined as the estimated price that is likely to be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants (an exit price) at the measurement date. A fair value hierarchy is established that prioritizes the sources ("inputs") used to measure fair value into three broad levels: inputs based on quoted market prices in active markets (Level 1); observable inputs based on corroboration with available market data (Level 2); and unobservable inputs based on uncorroborated market data or a reporting entity's own assumptions (Level 3). Following is a description of the valuation methodologies and general classification used for financial instruments measured at fair value.

The Company uses quoted values and other data provided by a nationally recognized independent pricing source as inputs into its quarterly process for determining fair values of its fixed maturity and equity securities. To validate the techniques or models used by pricing sources, the Company's review process includes, but is not limited to: (i) initial and ongoing evaluation of methodologies used by outside parties to calculate fair value; and (ii) comparing other sources including the fair value estimates to its knowledge of the current market and to independent fair value estimates provided by the investment custodian. The independent pricing source obtains market quotations and actual transaction prices for securities that have quoted prices in active markets and uses its own proprietary method for determining the fair value of securities that are not actively traded. In general, these methods involve the use of "matrix pricing" in which the independent pricing source uses observable market inputs including, but not limited to, investment yields, credit risks and spreads, benchmarking of like securities, broker-dealer quotes, reported trades and sector groupings to determine a reasonable fair value.

Level 1 securities include U.S. and Canadian Treasury notes, publicly traded common stocks, the quoted net asset value ("NAV") mutual funds, and most short-term investments in highly liquid money market instruments. Level 2 securities generally include corporate bonds, municipal bonds, and certain U.S. and Canadian government agency securities. Securities classified within Level 3 include non-publicly traded bonds and equity securities. There were no significant changes in the fair value of assets measured with the use of significant unobservable inputs as of June 30, 2018 and December 31, 2017.

The following tables show a summary of the fair value of financial assets segregated among the various input levels described above:
 
 
Fair Value Measurements
As of June 30, 2018:
 
Level 1
 
Level 2
 
Level 3
 
Total
Available for sale:
 
 
 
 
 
 
 
 
Fixed maturity securities:
 
 
 
 
 
 
 
 
U.S. & Canadian Governments
 
$
641.3

 
$
789.0

 
$

 
$
1,430.3

Corporate
 

 
6,553.7

 
10.5

 
6,564.2

Short-term investments
 
516.9

 

 

 
516.9

Held to maturity:
 
 
 
 
 
 
 
 
Fixed maturity securities:
 
 
 
 
 
 
 
 
Tax-exempt
 

 
1,034.3

 

 
1,034.3

Equity securities
 
$
3,269.8

 
$

 
$
1.6

 
$
3,271.4

 
 
 
 
 
 
 
 
 
As of December 31, 2017:
 
 
 
 
 
 
 
 
Available for sale:
 
 
 
 
 
 
 
 
Fixed maturity securities:
 
 
 
 
 
 
 
 
U.S. & Canadian Governments
 
$
761.4

 
$
790.8

 
$

 
$
1,552.2

Corporate
 

 
6,719.5

 
10.5

 
6,730.0

Short-term investments
 
670.1

 

 

 
670.1

Held to maturity:
 
 
 
 
 
 
 
 
Fixed maturity securities:
 
 
 
 
 
 
 
 
Tax-exempt
 

 
1,069.2

 

 
1,069.2

Equity securities
 
$
3,264.4

 
$

 
$
1.1

 
$
3,265.5


There were no transfers between Levels 1, 2 or 3 during the six months ended June 30, 2018.

Investment income is reported net of allocated expenses and includes appropriate adjustments for amortization of premium and accretion of discount on fixed maturity securities acquired at other than par value. Dividends on equity securities are credited to income on the ex-dividend date.

Realized investment gains and losses, which result from sales or write-downs of securities, are reflected as revenues in the income statement and are determined on the basis of amortized cost at date of sale for fixed maturity securities, and cost in regard to equity securities; such bases apply to the specific securities sold. Effective January 1, 2018, as above noted, unrealized gains and (losses) from changes in fair value of equity securities are recorded as investment gains (losses) in the income statement. Unrealized investment gains (losses) on fixed maturity securities, net of any

11



deferred income taxes, are recorded directly as a component of accumulated other comprehensive income in shareholders' equity. At June 30, 2018, the Company and its subsidiaries had no non-income producing fixed maturity or equity securities.

The following table reflects the composition of net investment income, net realized gains or losses, and the net change in unrealized investment gains or losses for each of the periods shown.
 
Quarters Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2018
 
2017
 
2018
 
2017
Investment income from:
 
 
 
 
 
 
 
Fixed maturity securities
$
75.5

 
$
73.2

 
$
149.8

 
$
147.5

Equity securities
29.4

 
26.6

 
59.8

 
52.8

Short-term investments
2.2

 
1.1

 
4.1

 
1.9

Other sources
1.1

 
.9

 
2.1

 
2.2

Gross investment income
108.4

 
102.1

 
215.9

 
204.5

Investment expenses (a)
1.4

 
1.0

 
3.1

 
2.1

Net investment income
$
106.9

 
$
101.0

 
$
212.7

 
$
202.3

 
 
 
 
 
 
 
 
Investment gains (losses):
 
 
 
 
 
 
 
From actual sale transactions:
 
 
 
 
 
 
 
Fixed maturity securities:
 
 
 
 
 
 
 
Gains
$

 
$
11.5

 
$
.3

 
$
14.4

Losses

 
(4.6
)
 
(.1
)
 
(4.8
)
Net

 
6.8

 
.2

 
9.5

Equity securities:
 
 
 
 
 
 
 
Gains
37.9

 

 
52.9

 
12.2

Losses
(7.1
)
 

 
(7.1
)
 

Net
30.8

 

 
45.7

 
12.2

Other long-term investments, net
1.2

 
(.1
)
 
1.5

 

Total from actual sale transactions
32.0

 
6.8

 
47.5

 
21.7

From unrealized changes in fair value of equity securities
41.3

 

 
(110.6
)
 

From impairments

 

 

 

Total realized and unrealized investment gains (losses)
73.3

 
6.8

 
(63.1
)
 
21.7

Current and deferred income taxes (credits)
15.4

 
2.4

 
(13.3
)
 
7.5

Post tax realized and unrealized investment gains (losses)
$
57.9

 
$
4.4

 
$
(49.7
)
 
$
14.1

 
 
 
 
 
 
 
 
Changes in unrealized investment gains (losses)
 
 
 
 
 
 
 
reflected directly in shareholders' equity on:
 
 
 
 
 
 
 
Fixed maturity securities
$
(64.2
)
 
$
5.9

 
$
(212.9
)
 
$
22.9

Less: Deferred income taxes (credits)
(13.5
)
 
2.1

 
(44.8
)
 
8.0

 
(50.6
)
 
3.7

 
(168.1
)
 
14.9

 
 
 
 
 
 
 
 
Equity securities & other long-term investments

 
2.9

 
(.3
)
 
51.1

Less: Deferred income taxes (credits)

 
1.0

 

 
17.8

 

 
1.8

 
(.3
)
 
33.2

Net changes in unrealized investment gains (losses)
$
(50.6
)
 
$
5.6

 
$
(168.4
)
 
$
48.1

__________

(a)
Investment expenses largely consist of personnel costs and investment management and custody service fees.

4. Losses, Claims and Settlement Expenses:

The establishment of claim reserves by the Company's insurance subsidiaries is a reasonably complex and dynamic process influenced by a large variety of factors. These factors principally include past experience applicable to the anticipated costs of various types of claims, continually evolving and changing legal theories emanating from the judicial system, recurring accounting, statistical, and actuarial studies, the professional experience and expertise of the Company's claim departments' personnel or attorneys and independent claim adjusters, ongoing changes in claim frequency or severity patterns such as those caused by natural disasters, illnesses, accidents, work‑related injuries, and changes in general and industry-specific economic conditions. Consequently, the reserves established are a reflection of the opinions of a large number of persons, of the application and interpretation of historical precedent and trends, of

12



expectations as to future developments, and of management's judgment in interpreting all such factors. At any point in time, the Company is exposed to the incurrence of possibly higher or lower than anticipated claim costs due to all of these factors, and to the evolution, interpretation, and expansion of tort law, as well as the effects of unexpected jury verdicts.

All reserves are therefore based on estimates which are periodically reviewed and evaluated in the light of emerging claim experience and changing circumstances. The resulting changes in estimates are recorded in operations of the periods during which they are made. Return and additional premiums and policyholders' dividends, all of which tend to be affected by development of claims in future years, may offset, in whole or in part, favorable or unfavorable claim developments for certain coverages such as workers' compensation, portions of which are written under loss sensitive programs that provide for such adjustments. The Company believes that its overall reserving practices have been consistently applied over many years, and that its aggregate net reserves have generally resulted in reasonable approximations of the ultimate net costs of claims incurred. However, no representation is made nor is any guaranty given that ultimate net claim and related costs will not develop in future years to be greater or lower than currently established reserve estimates.

The Company’s accounting policy regarding the establishment of claim reserve estimates is described in Note 1(h) to the consolidated financial statements included in Old Republic’s 2017 Annual Report on Form 10-K. The following table shows an analysis of changes in aggregate reserves for the Company's losses, claims and settlement expenses for each of the periods shown.























This space left intentionally blank


13



Summary of changes in aggregate reserves for claims and related costs:
 
Six Months Ended
 
June 30,
 
2018
 
2017
Gross reserves at beginning of period
$
9,237.6

 
$
9,206.0

Less: reinsurance losses recoverable
2,921.1

 
2,766.1

Net reserves at beginning of period:
 
 
 
General Insurance
5,471.5

 
5,249.9

Title Insurance
559.7

 
602.0

RFIG Run-off
271.7

 
574.0

Other
13.5

 
13.8

Sub-total
6,316.4

 
6,439.8

Incurred claims and claim adjustment expenses:
 
 
 
Provisions for insured events of the current year:
 
 
 
General Insurance
1,118.0

 
1,061.7

Title Insurance
45.5

 
44.3

RFIG Run-off (a)
33.9

 
67.6

Other
11.2

 
11.4

Sub-total
1,208.7

 
1,185.1

Change in provision for insured events of prior years:
 
 
 
General Insurance
16.0

 
28.8

Title Insurance
(15.5
)
 
(22.0
)
RFIG Run-off (a)
(15.8
)
 
(21.4
)
Other
(2.4
)
 
(1.8
)
Sub-total
(17.7
)
 
(16.5
)
Total incurred claims and claim adjustment expenses (a)
1,190.9

 
1,168.6

Payments:
 
 
 
Claims and claim adjustment expenses attributable to
 
 
 
   insured events of the current year:
 
 
 
General Insurance
300.2

 
276.4

Title Insurance
1.0

 
1.4

RFIG Run-off (b)
.5

 
.9

Other
6.3

 
6.4

Sub-total
308.1

 
285.3

Claims and claim adjustment expenses attributable to
 
 
 
   insured events of prior years:
 
 
 
General Insurance
688.5

 
677.3

Title Insurance
31.9

 
31.8

RFIG Run-off (b)
65.3

 
97.1

Other
3.4

 
3.2

Sub-total
789.2

 
809.6

Total payments (b)
1,097.4

 
1,094.9

Amount of reserves for unpaid claims and claim adjustment expenses
 
 
 
at the end of each period, net of reinsurance losses recoverable: (c)
 
 
 
General Insurance
5,616.8

 
5,386.7

Title Insurance
556.7

 
591.0

RFIG Run-off
223.9

 
522.0

Other
12.4

 
13.7

Sub-total
6,409.9

 
6,513.5

Reinsurance losses recoverable
2,982.6

 
2,873.0

Gross reserves at end of period
$
9,392.5

 
$
9,386.6

__________

(a)
In common with all other insurance coverages, RFIG Run-off mortgage guaranty settled and incurred claim and claim adjustment expenses include only those costs actually or expected to be paid by the Company. Changes in mortgage guaranty aggregate case, IBNR, and loss adjustment expense reserves shown below and entering into

14



the determination of incurred claim costs, take into account, among a large number of variables, claim cost reductions for anticipated coverage rescissions and claims denials.

The RFIG Run-off mortgage guaranty provision for insured events of the current year was reduced by estimated coverage rescissions and claims denials of $2.2 and $3.2 for the year-to-date periods ended June 30, 2018 and 2017, respectively. The provision for insured events of prior years for the periods shown in the table was (increased) reduced by estimated coverage rescissions and claims denials of $(3.3) and $(1.9), respectively. Prior year development was also affected in varying degrees by differences between actual claim settlements relative to expected experience, by reinstatement of previously rescinded or denied claims, and by subsequent revisions of assumptions in regards to claim frequency, severity or levels of associated claim settlement costs which result from consideration of underlying trends and expectations.

(b)
Rescissions reduced the Company's paid losses by an estimated $2.7 and $6.4 for the year-to-date periods ended June 30, 2018 and 2017, respectively.

(c)
Net reserves for claims that have been incurred but are not yet reported ("IBNR") carried in each segment were as follows:
 
 
June 30,
 
June 30,
 
December 31,
 
 
2018
 
2017
 
2017
 
General Insurance
$
2,729.6

 
$
2,560.7

 
$
2,585.9

 
Title Insurance
478.7

 
519.0

 
479.3

 
RFIG Run-off
29.6

 
221.8

 
30.5

 
Other
4.1

 
5.3

 
4.7

 
Total
$
3,242.2

 
$
3,306.9

 
$
3,100.6


5. Employee Benefit Plans:

The Company had an active pension plan (the "Plan") covering a portion of its work force until December 31, 2013. The Plan is a defined benefit plan pursuant to which pension payments are based primarily on years of service and employee compensation near retirement. The Plan was closed to new participants and benefits were frozen as of December 31, 2013. As a result, eligible employees retained all of the vested rights as of the effective date of the freeze. While additional benefits no longer accrue, the Company's cumulative obligation continues to be subject to further adjustment due to changes in actuarial assumptions such as expected mortality and changes in interest rates. Net periodic pension costs for the quarterly and year-to-date periods ended June 30, 2018 and 2017 were not material to Old Republic's consolidated statements of income.

During the second quarter of 2018, the Employee Savings and Stock Ownership Plan (ESSOP) purchased 1.7 million shares of Old Republic common stock for $37.4. The purchases were financed by loans to the ESSOP from participating subsidiaries.

6. Information About Segments of Business:

Old Republic is engaged in the single business of insurance underwriting and related services. The Company conducts its operations through a number of regulated insurance company subsidiaries organized into three major segments, namely its General Insurance Group (property and liability insurance), Title Insurance Group, and the Republic Financial Indemnity Group ("RFIG") Run-off Business. The results of a small life & accident insurance business are included with those of its holding company parent and minor corporate services operations. Each of the Company's segments underwrites and services only those insurance coverages which may be written by it pursuant to state insurance regulations and corporate charter provisions. Segment results exclude investment gains or losses and other-than-temporary impairments as these are aggregated in the consolidated totals. The contributions of Old Republic's insurance industry segments to consolidated totals are shown in the following table.









This space left intentionally blank










15



Segmented and Consolidated Results:
 
Quarters Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2018
 
2017
 
2018
 
2017
General Insurance:
 
 
 
 
 
 
 
Net premiums earned
$
808.5

 
$
769.5

 
$
1,599.7

 
$
1,512.3

Net investment income and other income
114.5

 
107.2

 
228.1

 
213.4

Total revenues before investment gains or losses
$
923.0

 
$
876.7

 
$
1,827.8

 
$
1,725.7

Income before income taxes (credits) and investment
 
 
 
 
 
 
 
 gains or losses (a)
$
90.7

 
$
62.7

 
$
174.0

 
$
156.4

Income tax expense (credits) on above
$
17.1

 
$
17.6

 
$
28.7

 
$
45.6

 
 
 
 
 
 
 
 
Title Insurance:
 
 
 
 
 
 
 
Net premiums earned
$
463.4

 
$
432.0

 
$
878.0

 
$
850.4

Title, escrow and other fees
125.5

 
123.5

 
224.8

 
223.2

Sub-total
588.9

 
555.6

 
1,102.8

 
1,073.6

Net investment income and other income
9.6

 
9.3

 
19.4

 
19.1

Total revenues before investment gains or losses
$
598.6

 
$
565.0

 
$
1,122.3

 
$
1,092.8

Income before income taxes (credits) and investment
 
 
 
 
 
 
 
 gains or losses (a)
$
60.9

 
$
65.0

 
$
90.4

 
$
105.5

Income tax expense (credits) on above
$
13.0

 
$
22.5

 
$
19.3

 
$
36.4

 
 
 
 
 
 
 
 
RFIG Run-off Business:
 
 
 
 
 
 
 
Net premiums earned
$
19.6

 
$
32.9

 
$
41.0

 
$
68.4

Net investment income and other income
5.4

 
5.3

 
10.8

 
10.9

Total revenues before investment gains or losses
$
25.1

 
$
38.3

 
$
51.8

 
$
79.4

Income before income taxes (credits) and investment
 
 
 
 
 
 
 
 gains or losses
$
13.7

 
$
6.8

 
$
24.7

 
$
21.3

Income tax expense (credits) on above
$
2.8

 
$
2.2

 
$
5.0

 
$
7.5

 
 
 
 
 
 
Consolidated Revenues:
 
 
 
 
 
 
 
Total revenues of above Company segments
$
1,546.8

 
$
1,480.0

 
$
3,002.0

 
$
2,898.1

Other sources (b)
40.2

 
42.2

 
81.7

 
84.1

Consolidated investment gains (losses):
 
 
 
 
 
 
 
Realized from actual transactions
32.0

 
6.8

 
47.5

 
21.7

Unrealized from changes in fair value of equity securities
41.3

 

 
(110.6
)
 

Total realized and unrealized investment gains (losses)
73.3

 
6.8

 
(63.1
)
 
21.7

Consolidation elimination adjustments
(29.8
)
 
(30.1
)
 
(59.5
)
 
(60.1
)
Consolidated revenues
$
1,630.7

 
$
1,499.0

 
$
2,961.1

 
$
2,943.8

 
 
 
 
 
 
 
 
Consolidated Income (Loss) Before Income
 
 
 
 
 
 
 
Taxes (Credits):
 
 
 
 
 
 
 
Total income before income taxes (credits)
 
 
 
 
 
 
 
and investment gains or losses of
 
 
 
 
 
 
 
above Company segments
$
165.3

 
$
134.6

 
$
289.2

 
$
283.3

Other sources - net (b)
7.9

 
4.8

 
14.4

 
5.9

Consolidated investment gains (losses):
 
 
 
 
 
 
 
Realized from actual transactions
32.0

 
6.8

 
47.5

 
21.7

Unrealized from changes in fair value of equity securities
41.3

 

 
(110.6
)
 

Total realized and unrealized investment gains (losses)
73.3

 
6.8

 
(63.1
)
 
21.7

Consolidated income (loss) before income
 
 
 
 
 
 
 
   taxes (credits)
$
246.6

 
$
146.3

 
$
240.6

 
$
311.0

 
 
 
 
 
 
 
 


16



 
Quarters Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2018
 
2017
 
2018
 
2017
Consolidated Income Tax Expense (Credits):
 
 
 
 
 
 
 
Total income tax expense (credits)
 
 
 
 
 
 
 
for above Company segments
$
33.0

 
$
42.4

 
$
53.1

 
$
89.6

Other sources - net (b)
.4

 
(.1
)
 
(1.1
)
 
(.9
)
Income tax expense (credits) on consolidated realized
 
 
 
 
 
 
 
and unrealized investment gains (losses)
15.4

 
2.4

 
(13.3
)
 
7.5

Consolidated income tax expense (credits)
$
48.8

 
$
44.6

 
$
38.7

 
$
96.2

 
 
 
 
 
 
 
 
 
June 30,
 
December 31,
 
2018
 
2017
Consolidated Assets:
 
 
 
General Insurance
$
16,519.9

 
$
16,055.5

Title Insurance
1,413.6

 
1,466.0

RFIG Run-off Business
766.6

 
805.0

Total assets for the above company segments
18,700.2

 
18,326.6

Other assets (b)
1,049.7

 
1,440.9

Consolidation elimination adjustments
(295.6
)
 
(364.0
)
Consolidated assets
$
19,454.2

 
$
19,403.5

 
 
 
 

(a)
Income before income taxes (credits) is reported net of interest charges on intercompany financing arrangements with Old Republic's holding company parent for the following segments: General - $16.6 and $32.0 compared to $14.2 and $28.3 for the quarters and six months ended June 30, 2018 and 2017, respectively, and Title - $1.5 and $3.0 compared to $2.2 and $4.3 for the quarters and six months ended June 30, 2018 and 2017, respectively.
(b)
Represents amounts for Old Republic's holding company parent, minor corporate services subsidiaries, and a small life and accident insurance operation.

7. Commitments and Contingent Liabilities:

Legal proceedings against the Company and its subsidiaries routinely arise in the normal course of business and usually pertain to claim matters related to insurance policies and contracts issued by its insurance subsidiaries. Under GAAP, an estimated loss is accrued only if the loss is probable and reasonably estimable. At June 30, 2018, the Company did not have material non-claim litigation exposures in its consolidated business for which adequate claim and related expense provisions had not been made.

8. Debt:

Consolidated debt of Old Republic and its subsidiaries is summarized below:
 
June 30, 2018
 
December 31, 2017
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
3.75% Convertible Senior Notes due 2018
$

 
$

 
$
470.6

 
$
652.2

4.875% Senior Notes issued in 2014 and due 2024
396.5

 
415.0

 
396.2

 
430.3

3.875% Senior Notes issued in 2016 and due 2026
545.4

 
528.7

 
545.1

 
553.9

ESSOP debt

 

 
4.2

 
4.2

Other miscellaneous debt with an average yield of 3.13%
 
 
 
 
 
 
 
and 2.45%, respectively
32.4

 
32.5

 
32.4

 
32.5

Total debt
$
974.4

 
$
976.3

 
$
1,448.7

 
$
1,673.2


During the first quarter 2018, the Company's outstanding aggregate principal amount of the 3.75% Convertible Senior Notes were converted into 32,229,787 shares of Old Republic common stock.

Fair Value Measurements - The Company utilizes indicative market prices, which incorporate recent actual market transactions and current bid/ask quotations to estimate the fair value of outstanding debt securities that are classified within Level 2 of the fair value hierarchy as presented below. The Company uses an internally generated interest yield market matrix table, which incorporates maturity, coupon rate, credit quality, structure and current market conditions to estimate the fair value of its outstanding debt securities that are classified within Level 3.


17



The following table shows a summary of the carrying value and fair value of financial liabilities segregated among the various input levels described in Note 3 above:
 
 
Carrying
 
Fair
 
 
 
 
Value
 
Value
 
Level 1
 
Level 2
 
Level 3
Financial Liabilities:
 
 
 
 
 
 
 
 
 
 
Debt:
 
 
 
 
 
 
 
 
 
 
June 30, 2018
 
$
974.4

 
$
976.3

 
$

 
$
943.8

 
$
32.5

December 31, 2017
 
$
1,448.7

 
$
1,673.2

 
$

 
$
1,636.5

 
$
36.7


9. Income Taxes:

Tax positions taken or expected to be taken in a tax return by the Company are recognized in the financial statements when it is more likely than not that the position would be sustained upon examination by tax authorities. To the best of management's knowledge, there are no tax uncertainties that are expected to result in significant increases or decreases to unrecognized tax benefits within the next twelve month period. The Company views its income tax exposures as primarily consisting of timing differences whereby the ultimate deductibility of a taxable amount is highly certain but the timing of its deductibility is uncertain. Such differences relate principally to the timing of deductions for loss and premium reserves. As in prior examinations, the Internal Revenue Service ("IRS") could assert that claim reserve deductions were overstated thereby reducing the Company's statutory taxable income in any particular year. The Company believes that it establishes its reserves fairly and consistently at each balance sheet date, and that it would succeed in defending its tax position in these regards. Because of the impact of deferred income tax accounting, the possible accelerated payment of tax to the IRS would not necessarily affect the annual effective tax rate. The Company classifies interest and penalties as income tax expense in the consolidated statement of income. The IRS has audited the Company's consolidated Federal income tax returns through year-end 2013.

The Tax Cuts and Jobs Act ("TCJA") was enacted into law on December 22, 2017. The TCJA, among its many elements, lowered the nominal federal corporate tax rate to 21.0% from 35.0%. The IRS requires the Company's insurance subsidiaries to discount loss reserves using either company specific payment patterns, or industry average tables published by the IRS. The Company has previously elected to follow the IRS industry average tables. The TCJA requires the IRS to publish tables linking the interest rates used to discount loss reserves to the corporate bond yield curve as opposed to the Federal mid-term rates used under the old law. As of the date of this report, the IRS has not published the updated tables. Accordingly, the Company is unable to make a reasonable estimate of any adjustment resulting from the application of the new IRS published discount rates. The Company has used the most recently published IRS tables for the preparation of the accompanying consolidated financial statements. Any adjustment to the loss reserve discount will be recorded in the period in which additional information becomes available.
















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18



OLD REPUBLIC INTERNATIONAL CORPORATION
MANAGEMENT ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS
Quarter and Six Months Ended June 30, 2018 and 2017
($ in Millions, Except Share Data)
OVERVIEW

This management analysis of financial position and results of operations pertains to the consolidated accounts of Old Republic International Corporation ("Old Republic", "ORI", or "the Company"). The Company conducts its operations principally through three major regulatory segments, namely, its General (property and liability), Title, and the RFIG (mortgage guaranty and consumer credit indemnity) Run-off Business. A small life and accident insurance business, accounting for 0.3% of consolidated operating revenues for the six months ended June 30, 2018 and 0.7% of consolidated assets as of that date, is included within the corporate and other caption of this report.

The consolidated accounts are presented in conformity with the Financial Accounting Standards Board's ("FASB") Accounting Standards Codification ("ASC") of accounting principles generally accepted in the United States of America ("GAAP"). As a publicly held company, Old Republic utilizes GAAP largely to comply with the financial reporting requirements of the Securities and Exchange Commission ("SEC"). From time to time the FASB and the SEC issue various releases, many of which require additional financial statement disclosures and provide related application guidance. Recent guidance issued by the FASB is summarized further in Note 1 of the Notes to Consolidated Financial Statements.

As a state regulated financial institution vested with the public interest, however, business of the Company's insurance subsidiaries is managed pursuant to the laws, regulations, and accounting practices of the various states in the U.S. and those of a small number of other jurisdictions outside the U.S. in which they operate. In comparison with GAAP, the statutory accounting practices reflect greater conservatism and comparability among insurers, and are intended to address the primary financial security interests of policyholders and their beneficiaries. Additionally, these practices also affect a significant number of important factors such as product pricing, risk bearing capacity and capital adequacy, the determination of Federal income taxes payable currently among ORI's tax-consolidated entities, and the upstreaming of dividends by insurance subsidiaries to the parent holding company. The major differences between these statutory financial accounting practices and GAAP are summarized in Note 1(a) to the consolidated financial statements included in Old Republic's 2017 Annual Report on Form 10-K.

The insurance business is distinguished from most others in that the prices (premiums) charged for various insurance products are set without certainty of the ultimate benefit and claim costs that will emerge, often many years after issuance and expiration of a policy. This basic fact casts Old Republic as a risk-taking enterprise managed for the long run. Management therefore conducts the business with a primary focus on achieving favorable underwriting results over cycles, and on the maintenance of financial soundness in support of the insurance subsidiaries' long-term obligations to policyholders and their beneficiaries. To achieve these objectives, adherence to insurance risk management principles is stressed, and asset diversification and quality are emphasized.

In addition to income arising from Old Republic's basic underwriting and related services functions, significant investment income is earned from invested funds generated by those functions and from capital resources. Investment management aims for stability of income from interest and dividends, protection of capital, and for sufficiency of liquidity to meet insurance underwriting and other obligations as they become payable in the future. Securities trading and the realization of capital gains are not objectives. The investment philosophy is therefore best characterized as emphasizing value, credit quality, and relatively long-term holding periods. The Company's ability to hold both fixed maturity and equity securities for long periods of time is in turn enabled by the scheduling of maturities in contemplation of an appropriate matching of assets and liabilities, and by investments in large capitalization, highly liquid equity securities.

In light of the above factors, the Company's affairs are managed for the long run and without significant regard to the arbitrary strictures of quarterly or even annual reporting periods that American industry must observe. In Old Republic's view, such short reporting time frames do not comport well with the long-term nature of much of its business. Management therefore believes that the Company's operating results and financial condition can best be evaluated by observing underwriting and overall operating performance trends over succeeding five- or preferably ten-year intervals. A ten-year period in particular can likely encompass at least one economic and/or underwriting cycle and thereby provide an appropriate time frame for such cycle to run its course, and for premium rate changes and reserved claim costs to be quantified and emerge in financial results with greater finality and effect.

This management analysis should be read in conjunction with the consolidated financial statements and the footnotes appended to them.


19



EXECUTIVE SUMMARY

Pretax operating income benefitted from improving underwriting/service income trends for General Insurance in particular, mid-single digit investment income growth, and lower debt interest costs. Post-tax operating income was affected by the same factors and a lower corporate income tax rate, while net income was additionally influenced by variations in realized investment gains and the inclusion, for the first time in 2018, of unrealized investment gains or losses of equity securities. As the consequence of some of these factors, year-over-year reported results are not fully comparable. The table following the Financial Highlights shows the impact of the pertinent factors on period-to-period comparisons.
Financial Highlights
 
 
Quarters Ended June 30,
 
Six Months Ended June 30,
 
 
2018
 
2017
 
Change
 
2018
 
2017
 
Change
Operating revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
General insurance
 
$
923.0

 
$
876.7

 
5.3
 %
 
$
1,827.8

 
$
1,725.7

 
5.9
 %
Title insurance
 
 
598.6

 
 
565.0

 
6.0

 
 
1,122.3

 
 
1,092.8

 
2.7

Corporate and other
 
 
10.4

 
 
12.0

 
(13.3
)
 
 
22.1

 
 
24.0

 
(7.8
)
Subtotal
 
 
1,532.2

 
 
1,453.8

 
5.4

 
 
2,972.3

 
 
2,842.6

 
4.6

RFIG run-off business
 
 
25.1

 
 
38.3

 
(34.4
)
 
 
51.8

 
 
79.4

 
(34.7
)
Total
 
$
1,557.3

 
$
1,492.1

 
4.4
 %
 
$
3,024.2

 
$
2,922.1

 
3.5
 %
Pretax operating income (loss):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
General insurance
 
$
90.7

 
$
62.7

 
44.6
 %
 
$
174.0

 
$
156.4

 
11.2
 %
Title insurance
 
 
60.9

 
 
65.0

 
(6.3
)
 
 
90.4

 
 
105.5

 
(14.3
)
Corporate and other
 
 
7.9

 
 
4.8

 
64.1

 
 
14.4

 
 
5.9

 
142.0

Subtotal
 
 
159.5

 
 
132.6

 
20.3

 
 
278.9

 
 
267.9

 
4.1

RFIG run-off business
 
 
13.7

 
 
6.8

 
100.6

 
 
24.7

 
 
21.3

 
15.8

Total
 
 
173.3

 
 
139.4

 
24.3
 %
 
 
303.7

 
 
289.3

 
5.0
 %
Pretax investment gains (losses):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Realized from actual transactions
 
 
32.0

 
 
6.8

 
 
 
 
47.5

 
 
21.7

 
 
Unrealized from changes in fair
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
value of equity securities
 
 
41.3

 
 

 
 
 
 
(110.6
)
 
 

 
 
Total realized and unrealized
 
73.3

 
 
6.8

 
 
 
 
(63.1
)
 
 
21.7

 
 
Consolidated pretax income (loss)
 
246.6

 
 
146.3

 
 
 
 
240.6

 
 
311.0

 
 
Income taxes (credits)
 
 
48.8

 
 
44.6

 
 
 
 
38.7

 
 
96.2

 
 
Net income (loss)
 
$
197.7

 
$
101.6

 
94.6
 %
 
$
201.8

 
$
214.7

 
(6.0
)%
Components of post-tax diluted earnings per share:
 
 
 
 
 
 
 
 
 
 
Net operating income (loss):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
General insurance
 
$
0.24

 
$
0.15

 
60.0
 %
 
$
0.48

 
$
0.37

 
29.7
 %
Title insurance
 
 
0.16

 
 
0.14

 
14.3

 
 
0.24

 
 
0.23

 
4.3

Corporate and other
 
 
0.03

 
 
0.03

 

 
 
0.06

 
 
0.05

 
20.0

Subtotal
 
 
0.43

 
 
0.32

 
34.4

 
 
0.78

 
 
0.65

 
20.0

RFIG run-off business
 
 
0.04

 
 
0.02

 
100.0

 
 
0.07

 
 
0.05

 
40.0

Net operating income (loss)
 
 
0.47

 
 
0.34

 
38.2
 %
 
 
0.85

 
 
0.70

 
21.4
 %
Net realized investment gains (losses)
 
0.08

 
 
0.01

 
 
 
 
0.12

 
 
0.04

 
 
Subtotal
 
 
0.55

 
 
0.35

 
 
 
 
0.97

 
 
0.74

 
 
Net unrealized investment gains
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(losses)
 
 
0.11

 
 

 
 
 
 
(0.29
)
 
 

 
 
Net income (loss)
 
$
0.66

 
$
0.35

 
88.6
 %
 
$
0.68

 
$
0.74

 
(8.1
)%
Cash dividends declared per share
$
0.1950

 
$
0.1900

 
2.6
 %
 
$
0.3900

 
$
0.3800

 
2.6
 %
Ending book value per share
 
 
 
 
 
 
 
 
 
$
17.08

 
$
17.81

 
(4.1
)%

Effective January 1, 2018, two significant events have transpired that have a bearing on the year-over-year comparability of consolidated pretax income, as well as post-tax net operating and net income. The first arises from a new rule of the Financial Accounting Standards Board (“FASB”) which now requires the inclusion of unrealized investment gains or losses emanating from changes in the fair value of equity (but not fixed maturity) securities in the determination of pre and post-tax income. The second relates to a reduction of nominal Federal corporate income tax rates from 35% to 21%.


20



To enhance the comparison of earnings among the periods reported upon, the following table shows the effects of the changed corporate income tax rates and the inclusion of unrealized fair value investment gains (losses) on equity securities in 2017 results as if the new rule applied to that year’s interim periods.
 
 
Quarters Ended June 30,
 
 
2018
 
2017
 
Change
Pretax operating income
 
$
173.3

 
$
139.4

 
24.3
 %
Income tax expense (effective rates 19.3% and 30.3%)(a)
 
 
33.4

 
 
42.2

 
(20.8
)
Net operating income
 
 
139.8

 
 
97.1

 
43.9
 %
Realized investment gains (losses) from actual sale transactions
 
 
32.0

 
 
6.8

 
 
Income tax expense (effective rates 21.0% and 35.0%)(a)
 
 
6.7

 
 
2.4

 
 
Net realized investment gains (losses)
 
 
25.2

 
 
4.4

 
 
Combined pretax operating income and realized investment gains (losses)
 
 
205.3

 
 
146.3

 
 
Income tax expense (effective rates 19.6% and 30.5%)(a)
 
 
40.1

 
 
44.6

 
 
Combined net operating income and realized investment gains
 
 
 
 
 
 
 
 
(losses)
 
 
165.1

 
 
101.6

 
 
Unrealized gains (losses) from changes in fair value of equity securities
 
 
41.3

 
 
2.7

(b)
 
Income tax expense (effective rates 21.0% and 35.0%)(a)
 
 
8.7

 
 
0.9

(b)
 
Net unrealized gains (losses)
 
 
32.6

 
 
1.7

(b)
 
Consolidated pretax income (loss)
 
 
246.6

 
 
149.0

(b)
 
Income tax expense (effective rates 19.8% and 30.6%)(a)
 
 
48.8

 
 
45.6

(b)
 
Net income (loss)
 
$
197.7

 
$
103.4

(b)
 
 
 
Six Months Ended June 30,
 
 
2018
 
2017
 
Change
Pretax operating income
 
$
303.7

 
$
289.3

 
5.0
 %
Income tax expense (effective rates 17.1% and 30.7%)(a)
 
 
52.0

 
 
88.6

 
(41.3
)
Net operating income
 
 
251.6

 
 
200.6

 
25.4
 %
Realized investment gains (losses) from actual sale transactions
 
 
47.5

 
 
21.7

 
 
Income tax expense (effective rates 21.0% and 35.0%)(a)
 
 
9.9

 
 
7.5

 
 
Net realized investment gains (losses)
 
 
37.5

 
 
14.1

 
 
Combined pretax operating income and realized investment gains (losses)
 
 
351.2

 
 
311.0

 
 
Income tax expense (effective rates 17.7% and 31.0%)(a)
 
 
62.0

 
 
96.2

 
 
Combined net operating income and realized investment gains
 
 
 
 
 
 
 
 
(losses)
 
 
289.2

 
 
214.7

 
 
Unrealized gains (losses) from changes in fair value of equity securities
 
 
(110.6
)
 
 
50.7

(b)
 
Income tax expense (effective rates 21.0% and 35.0%)(a)
 
 
(23.3
)
 
 
17.7

(b)
 
Net unrealized gains (losses)
 
 
(87.3
)
 
 
33.0

(b)
 
Consolidated pretax income (loss)
 
 
240.6

 
 
361.7

(b)
 
Income tax expense (effective rates 16.1% and 31.5%)(a)
 
 
38.7

 
 
114.0

(b)
 
Net income (loss)
 
$
201.8

 
$
247.7

(b)
 
__________________
(a) Effective rates based on 2018 (21%) and 2017 (35%) nominal Federal income tax rates, respectively.
(b) Amounts for 2017 include the retroactive, “as if” inclusion of unrealized gains or losses on equity securities for that period.

The above and preceding table show both net operating and net income to highlight the effects of realized and, beginning in 2018, unrealized investment gains or losses in equity securities on period-to-period comparisons. Management uses operating income, a non-GAAP financial measure, to evaluate and better explain operating performance, believing that the measure enhances an understanding of Old Republic’s core business results. Net operating income, however, does not replace GAAP net income as a measure of total profitability.

The realization of investment gains or losses can be highly discretionary due to such factors as the timing of individual securities sales, the recording of estimated losses from write-downs of impaired securities, tax-planning and tax-rate change considerations, as well as modifications in investment management judgments regarding the direction of securities markets or the future prospects of individual investees or industry sectors. The inclusion, starting in 2018, of market-driven changes in equity investments’ valuations will most likely produce greater period-to-period fluctuations in reported net income, particularly at times of significant instability or volatility in the securities markets. In any event, this FASB change has no effect on the management or evaluation of the Company’s basic operating results, nor on the determination of such critical elements as current income taxes, debt-to-equity ratios, shareholders’ equity, or insurance subsidiaries’ ability to pay dividends to the ORI holding company parent.




21



General Insurance Results - The table below shows the major elements affecting this segment's performance for the interim periods reported upon.
 
 
General Insurance Group
 
 
Quarters Ended June 30,
 
Six Months Ended June 30,
 
 
2018
 
2017
 
Change
 
2018
 
2017
 
Change
Net premiums earned
 
$
808.5

 
$
769.5

 
5.1
%
 
$
1,599.7

 
$
1,512.3

 
5.8
%
Net investment income
 
 
84.4

 
 
79.1

 
6.8

 
 
167.7

 
 
157.9

 
6.2

Other income
 
 
30.0

 
 
28.0

 
6.9

 
 
60.3

 
 
55.4

 
8.9

Operating revenues
 
 
923.0

 
 
876.7

 
5.3

 
 
1,827.8

 
 
1,725.7

 
5.9

Claim costs
 
 
578.1

 
 
573.0

 
0.9

 
 
1,144.2

 
 
1,100.7

 
4.0

Sales and general expenses
 
 
236.6

 
 
225.2

 
5.0

 
 
474.9

 
 
437.1

 
8.6

Interest and other costs
 
 
17.5

 
 
15.7

 
11.7

 
 
34.6

 
 
31.4

 
10.2

Total operating expenses
 
 
832.3

 
 
814.0

 
2.3

 
 
1,653.8

 
 
1,569.3

 
5.4

Pretax operating income (loss)(a)
 
$
90.7

 
$
62.7

 
44.6
%
 
$
174.0

 
$
156.4

 
11.2
%
Claim ratio
 
71.5
%
 
74.5
%
 
 
 
71.5
%
 
72.8
%
 
 
Expense ratio
 
25.5

 
25.6

 
 
 
25.9

 
25.2

 
 
Composite underwriting ratio
 
97.0
%
 
100.1
%
 
 
 
97.4
%
 
98.0
%
 
 
__________________
(a)
In connection with the run-off mortgage guaranty ("MI") and consumer credit indemnity ("CCI") combination, $- and $0.5 of pretax operating gains for the second quarter and first half of 2018, and $12.1 and $16.6 of pretax operating losses for the second quarter and first half of 2017, respectively, were retained by certain general insurance companies pursuant to various quota share and stop loss reinsurance agreements. All of these amounts, however, have been reclassified such that 100% of the CCI run-off business is reported in the RFIG run-off segment.

With few exceptions, earned premiums grew for most types of coverages and markets served. The aggregating effects of recent years’ and continuing premium rate increases for several insurance products, along with new business production were main contributory elements to the higher premium levels. Growth stemmed primarily from commercial automobile (trucking), national accounts, auto warranty, and the various coverages offered by a new underwriting facility established in early 2015. Net investment income gained moderately in the context of a relatively stable invested asset base and fundamentally unchanged yield environment.

As the table below indicates, year-over-year claim ratios trended down in this year’s first half. Better performance was driven by Old Republic’s large books of workers’ compensation and commercial automobile (trucking) coverages in particular. The downturn in this largest of cost elements was aided by slightly lower estimates of current year claim provisions, and a lessened impact from unfavorable development of prior years’ reserve estimates.

The table below shows recent annual and interim periods’ trends in prior years’ claim developments:
 
 
 
 
Effect of Prior Years'
 
 
 
 
 
 
(Favorable)/
 
Claim Ratio Excluding Prior
 
 
 
 
Unfavorable Claim
 
Years' Claim Reserves
 
 
Reported Claim Ratio
 
Reserves Development
 
Development
2013
 
73.6%
 
(0.9)%
 
74.5%
2014
 
77.9
 
3.9
 
74.0
2015
 
74.1
 
1.5
 
72.6
2016
 
73.0
 
0.3
 
72.7
2017
 
71.8%
 
0.7%
 
71.1%
2nd Quarter 2017
 
74.5%
 
2.4%
 
72.1%
2nd Quarter 2018
 
71.5%
 
—%
 
71.5%
1st Six Months 2017
 
72.8%
 
1.9%
 
70.9%
1st Six Months 2018
 
71.5%
 
1.0%
 
70.5%

As this year is progressing, the expense ratio is staying aligned with revenue trends.

Quarterly and even annual claim provisions, and the trends they display may not be particularly meaningful indicators of future outcomes for Old Republic’s liability-oriented mix of business. Absent significant economic and insurance industry dislocations in the foreseeable future, it is currently anticipated that reported claim ratios can be expected to fall within targeted averages in the high 60 to low 70 percent range. The current mix of business should reflect an expense ratio ranging between 23 and 25 percent.






22



Title Insurance Results - Operating results for 2018’s interim periods were for the most part affected by slower growth of premiums and fees revenues, while claim costs and general expenses grew at a relatively quicker pace.
 
 
Title Insurance Group
 
 
Quarters Ended June 30,
 
Six Months Ended June 30,
 
 
2018
 
2017
 
Change
 
2018
 
2017
 
Change
Net premiums and fees earned
 
$
588.9

 
$
555.6

 
6.0
 %
 
$
1,102.8

 
$
1,073.6

 
2.7
 %
Net investment income
 
 
9.5

 
 
9.2

 
3.3

 
 
19.0

 
 
18.7

 
1.4

Other income
 
 
0.1

 
 
0.1

 

 
 
0.4

 
 
0.4

 

Operating revenues
 
 
598.6

 
 
565.0

 
6.0

 
 
1,122.3

 
 
1,092.8

 
2.7

Claim costs
 
 
17.0

 
 
11.2

 
51.1

 
 
29.9

 
 
22.2

 
34.4

Sales and general expenses
 
 
519.6

 
 
486.6

 
6.8

 
 
999.4

 
 
960.7

 
4.0

Interest and other costs
 
 
1.1

 
 
2.0

 
(44.2
)
 
 
2.4

 
 
4.2

 
(43.0
)
Total operating expenses
 
 
537.7

 
 
499.9

 
7.6

 
 
1,031.8

 
 
987.3

 
4.5

Pretax operating income (loss)
 
$
60.9

 
$
65.0

 
(6.3
)%
 
$
90.4

 
$
105.5

 
(14.3
)%
Claim ratio
 
2.9
%
 
2.0
%
 
 
 
2.7
%
 
2.1
%
 
 
Expense ratio
 
88.2

 
87.6

 
 
 
90.6

 
89.4

 
 
Composite underwriting ratio
 
91.1
%
 
89.6
%
 
 
 
93.3
%
 
91.5
%
 
 

2018 year-over-year comparisons of revenues from title premiums and fees reflected mid-single digit growth paced by independent agents’ production and a slower rise in directly-produced business. By contrast, claim costs trended higher as favorable development of prior years’ claim reserve estimates edged down. The following table shows recent trends in reported claim ratios, and the impact on each calendar period of (favorable) or unfavorable developments of prior years’ claim reserve provisions:
 
 
 
 
Effect of Prior Years'
 
 
 
 
 
 
(Favorable)/
 
Claim Ratio Excluding Prior
 
 
 
 
Unfavorable Claim
 
Years' Claim Reserves
 
 
Reported Claim Ratio
 
Reserves Development
 
Development
2013
 
6.7%
 
(0.2)%
 
6.9%
2014
 
5.2
 
(0.8)
 
6.0
2015
 
4.9
 
(0.6)
 
5.5
2016
 
3.8
 
(1.1)
 
4.9
2017
 
0.9%
 
(3.3)%
 
4.2%
2nd Quarter 2017
 
2.0%
 
(2.1)%
 
4.1%
2nd Quarter 2018
 
2.9%
 
(1.2)%
 
4.1%
1st Six Months 2017
 
2.1%
 
(2.0)%
 
4.1%
1st Six Months 2018
 
2.7%
 
(1.4)%
 
4.1%

As the first table above indicates, net investment income was essentially flat as both invested asset balances and investment yields remained relatively unchanged. The operating expense ratio was within range of expectations for this segment’s current business environment.

23



RFIG Run-off Business Results - 2018 performance was in line with the anticipated decline of insured risk in force and concomitant reduction in net premiums earned.
 
RFIG Run-off Business
 
Quarters Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
Change
 
2018
 
2017
 
Change
A. Mortgage Insurance (MI)
 
 
 
 
 
 
 
 
Net premiums earned
 
$
19.2

 
$
29.1

 
(33.9
)%
 
$
40.2

 
$
60.5

 
(33.5
)%
Net investment income
 
 
5.2

 
 
5.0

 
3.1

 
 
10.3

 
 
10.3

 
0.4

Claim costs
 
 
6.2

 
 
10.3

 
(39.2
)
 
 
17.7

 
 
21.3

 
(16.6
)
Pretax operating income (loss)(a)
 
$
13.8

 
$
19.3

 
(28.4
)%
 
$
24.6

 
$
38.7

 
(36.4
)%
Claim ratio
 
32.7
%
 
35.5
%
 
 
 
44.2
%
 
35.2
%
 
 
Expense ratio
 
22.3

 
15.3

 
 
 
20.2

 
17.7

 
 
Composite underwriting ratio
 
55.0
%
 
50.8
%
 
 
 
64.4
%
 
52.9
%
 
 
B. Consumer Credit Indemnity (CCI)
 
 
 
 
 
 
 
 
Net premiums earned
 
$
0.4

 
$
3.7

 
(88.7
)%
 
$
0.8

 
$
7.9

 
(89.5
)%
Net investment income
 
 
0.2

 
 
0.3

 
(32.7
)
 
 
0.4

 
 
0.6

 
(32.6
)
Claim costs
 
 
0.3

 
 
15.9

 
(97.6
)
 
 
0.3

 
 
24.8

 
(98.5
)
Pretax operating income (loss)(a)
 
$
(0.1
)
 
$
(12.5
)
 
98.9
 %
 
$

 
$
(17.4
)
 
100.3
 %
Claim ratio
 
91.2
%
 
425.8
%
 
 
 
44.6
%
 
311.0
%
 
 
Expense ratio
 
95.7

 
17.4

 
 
 
101.5

 
15.5

 
 
Composite underwriting ratio
 
186.9
%
 
443.2
%
 
 
 
146.1
%
 
326.5
%
 
 
C. Total MI and CCI run-off business:
 
 
 
 
 
 
 
 
Net premiums earned
 
$
19.6

 
$
32.9

 
(40.2
)%
 
$
41.0

 
$
68.4

 
(40.0
)%
Net investment income
 
 
5.4

 
 
5.3

 
0.8

 
 
10.8

 
 
10.9

 
(1.6
)
Claim costs
 
 
6.6

 
 
26.3

 
(74.6
)
 
 
18.1

 
 
46.1

 
(60.6
)
Pretax operating income (loss)(a)
 
$
13.7

 
$
6.8

 
100.6
 %
 
$
24.7

 
$
21.3

 
15.8
 %
Claim ratio
 
33.9
%
 
80.0
%
 
 
 
44.2
%
 
67.4
%
 
 
Expense ratio
 
23.9

 
15.6

 
 
 
21.9

 
17.5

 
 
Composite underwriting ratio
 
57.8
%
 
95.6
%
 
 
 
66.1
%
 
84.9
%
 
 
__________________
(a)
In connection with the run-off mortgage guaranty ("MI") and consumer credit indemnity ("CCI") combination, $- and $0.5 of pretax operating gains for the second quarter and first half of 2018, and $12.1 and $16.6 of pretax operating losses for the second quarter and first half of 2017, respectively, were retained by certain general insurance companies pursuant to various quota share and stop loss reinsurance agreements. All of these amounts, however, have been reclassified such that 100% of the CCI run-off business is reported in the RFIG run-off segment.

Operating results of the run-off MI and CCI business reflect the expected, continuing drop in net earned premiums from declining risk in force. For the CCI coverage in particular, the much lower premiums in this year’s interim periods resulted mostly from the elimination of a major bank business relationship which had been a significant source of both earned premiums and litigated claim costs. The ratios of MI incurred claim costs to earned premiums were reduced by 37.9 and 32.5 percentage points in this year’s second quarter and first half, respectively. For the same respective periods of 2017, the reductions amounted to 27.0 and 31.1 percentage points. In each instance, the reductions reflect favorable developments of prior years’ claim reserves.

The much more favorable CCI claim ratios for this years’ second quarter and first half reflect the absence of the aforementioned litigation-induced claim costs which had burdened this book of business for many years through 2017’s third quarter. During the latter period, provision was made for the final settlement and probable disposition of all known litigated and other claim costs incurred during the Great Recession years and their aftermath.

24



Corporate and Other Operations - The combination of a small life and accident insurance business and the net costs associated with operations of the parent holding company and its internal services subsidiaries usually produce highly variable results. Earnings variations posted by these operations stem from volatility inherent to the small scale of the life and accident insurance line, net investment income, and net interest charges pertaining to external and intra-system financing arrangements. This year’s second quarter and first half results were enhanced by the elimination of interest costs related to outstanding debt converted into ORI common stock in March. The interplay of these various operating elements is summarized in the following table:
 
Corporate and Other Operations
 
Quarters Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
Net life and accident premiums earned
$
3.0

 
$
4.7

 
$
6.9

 
$
9.4

Net investment income
 
7.4

 
 
7.3

 
 
15.2

 
 
14.6

Other income
 

 
 

 
 

 
 

Operating revenues
 
10.4

 
 
12.0

 
 
22.1

 
 
24.0

Claim costs
 
5.5

 
 
4.2

 
 
9.0

 
 
9.2

Insurance expenses
 
1.0

 
 
1.7

 
 
2.4

 
 
5.5

Corporate, interest, and other expenses-net
 
(4.0
)
 
 
1.3

 
 
(3.7
)
 
 
3.2

Total operating expenses
 
2.5

 
 
7.2

 
 
7.7

 
 
18.0

Pretax operating income (loss)
$
7.9

 
$
4.8

 
$
14.4

 
$
5.9

Consolidated Results - The above summarized operating results of Old Republic’s segmented business are reflected in the following consolidation of accounts.
 
ORI Consolidated
 
Quarters Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
Change
 
2018
 
2017
 
Change
Net premiums and fees earned
$
1,420.2

 
$
1,362.8

 
4.2
 %
 
$
2,750.6

 
$
2,663.9

 
3.3
 %
Net investment income
 
106.9

 
 
101.0

 
5.8

 
 
212.7

 
 
202.3

 
5.1

Other income
 
30.1

 
 
28.2

 
7.0

 
 
60.7

 
 
55.8

 
8.9

Operating revenues
 
1,557.3

 
 
1,492.1

 
4.4

 
 
3,024.2

 
 
2,922.1

 
3.5

Claim costs
 
607.3

 
 
614.8

 
(1.2
)
 
 
1,201.4

 
 
1,178.2

 
2.0

Sales and general expenses
 
766.6

 
 
721.7

 
6.2

 
 
1,494.7

 
 
1,422.0

 
5.1

Interest and other costs
 
10.0

 
 
16.0

 
(37.8
)
 
 
24.4

 
 
32.5

 
(24.9
)
Total operating expenses
 
1,384.0

 
 
1,352.7

 
2.3

 
 
2,720.5

 
 
2,632.8

 
3.3

Pretax operating income (loss)
 
173.3

 
 
139.4

 
24.3

 
 
303.7

 
 
289.3

 
5.0

Income taxes (credits)
 
33.4

 
 
42.2

 
(20.8
)
 
 
52.0

 
 
88.6

 
(41.3
)
Net operating income (loss)
 
139.8

 
 
97.1

 
43.9
 %
 
 
251.6

 
 
200.6

 
25.4
 %
Realized investment gains (losses)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
from actual sale transactions
 
32.0

 
 
6.8

 
 
 
 
47.5

 
 
21.7

 
 
Income tax expense (credits)
 
6.7

 
 
2.4

 
 
 
 
9.9

 
 
7.5

 
 
Net realized investment
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
gains (losses) after tax
 
25.2

 
 
4.4

 
 
 
 
37.5

 
 
14.1

 
 
Unrealized investment gains (losses)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
from changes in fair value of
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
equity securities
 
41.3

 
 

 
 
 
 
(110.6
)
 
 

 
 
Income tax expense (credits)
 
8.7

 
 

 
 
 
 
(23.3
)
 
 

 
 
Net unrealized investment
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
gains (losses) after tax
 
32.6

 
 

 
 
 
 
(87.3
)
 
 

 
 
Net realized and unrealized
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
investment gains (losses)
 
57.9

 
 
4.4

 
 
 
 
(49.7
)
 
 
14.1

 
 
Net income (loss)
$
197.7

 
$
101.6

 
94.6
 %
 
$
201.8

 
$
214.7

 
(6.0
)%
Claim ratio
 
42.8
%
 
45.1
%
 
 
 
43.7
%
 
44.2
%
 
 
Expense ratio
 
51.5

 
50.7

 
 
 
51.8

 
51.0

 
 
Composite underwriting ratio
 
94.3
%
 
95.8
%
 
 
 
95.5
%
 
95.2
%
 
 
Consolidated operating cash flow
 
 
 
 
 
 
 
 
$
287.3

 
$
259.0

 
10.9
%


25



Consolidated operating cash flow was additive to investable funds and operating needs in the amount of $287.3 and $259.0 for the first six months of 2018 and 2017, respectively. Excluding inherently negative operating cash flows in the RFIG run-off business, these amounts would have been $307.4 and $319.9, respectively.

The sum-total of Old Republic's segmented results is represented by the following major components of pretax consolidated income:
 
Quarters Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
Change
 
2018
 
2017
 
Change
Pretax operating income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Underwriting and related services:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
All segments except RFIG
$
68.0

 
$
52.9

 
28.4
 %
 
$
101.4

 
$
109.0

 
(7.0
)%
RFIG run-off
 
8.3

 
 
1.4

 
N/M
 
 
13.9

 
 
10.3

 
34.2

Subtotal
 
76.3

 
 
54.4

 
40.3

 
 
115.3

 
 
119.4

 
(3.5
)
Net investment income
 
106.9

 
 
101.0

 
5.8

 
 
212.7

 
 
202.3

 
5.1

Interest and other costs
 
(10.0
)
 
 
(16.0
)
 
(37.8
)
 
 
(24.4
)
 
 
(32.5
)
 
(24.9
)
Total
 
173.3

 
 
139.4

 
24.3
 %
 
 
303.7

 
 
289.3

 
5.0
 %
Realized investment gains (losses)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
from actual sale transactions
 
32.0

 
 
6.8

 
 
 
 
47.5

 
 
21.7

 
 
Unrealized investment gains (losses)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
from changes in fair value of
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
equity securities
 
41.3

 
 

 
 
 
 
(110.6
)
 
 

 
 
Consolidated pretax income (loss)
$
246.6

 
$
146.3

 
 
 
$
240.6

 
$
311.0

 
 

Cash, Invested Assets, and Shareholders' Equity - The table below shows Old Republic's consolidated cash and invested assets as well as the shareholders' equity balances at the dates shown.
 
 
Cash, Invested Assets, and Shareholders' Equity
 
 
 
 
 
 
 
 
% Change
 
 
June 30,
 
Dec. 31,
 
June 30,
 
June '18 /
 
June '18 /
 
 
2018
 
2017
 
2017
 
Dec. '17
 
June '17
Cash and invested assets:
 
 
 
 
 
 
 
 
 
 
Invested assets, carried at fair value
$
12,015.8

 
$
12,468.9

 
$
12,156.3

 
(3.6
)%
 
(1.2
)%
 
Held to maturity, carried at amortized cost
1,056.2

 
1,067.4

 
1,071.7

 
(1.1
)
 
(1.4
)
 
Total per balance sheet
$
13,072.0

 
$
13,536.4

 
$
13,228.0

 
(3.4
)%
 
(1.2
)%
 
Total at original cost of all
$
12,643.1

 
$
12,783.4

 
$
12,514.4

 
(1.1
)%
 
1.0
 %
 
 
 
 
 
 
 
 
 
 
 
 
Shareholders' equity: Total
$
5,103.4

 
$
4,733.3

 
$
4,650.8

 
7.8
 %
 
9.7
 %
 
 
    Per common share
$
17.08

 
$
17.72

 
$
17.81

 
(3.6
)%
 
(4.1
)%
 
 
 
 
 
 
 
 
 
 
 
Composition of shareholders' equity per share:
 
 
 
 
 
 
 
 
 
 
Equity before items below
$
16.37

 
$
16.26

 
$
16.37

 
0.7
 %
 
 %
 
Unrealized investment gains (losses) and other
 
 
 
 
 
 
 
 
 
 
 
accumulated comprehensive income (loss)
0.71

 
1.46

 
1.44

 
 
 
 
 
 
 
Total
$
17.08

 
$
17.72

 
$
17.81

 
(3.6
)%
 
(4.1
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
Segmented composition of
 
 
 
 
 
 
 
 
 
 shareholders' equity per share:
 
 
 
 
 
 
 
 
 
 
Excluding run-off segment
$
15.63

 
$
16.14

 
$
16.44

 
(3.2
)%
 
(4.9
)%
 
RFIG run-off segment
1.45

 
1.58

 
1.37

 
 
 
 
 
 
 
Consolidated total
$
17.08

 
$
17.72

 
$
17.81

 
(3.6
)%
 
(4.1
)%

Old Republic's invested assets portfolio is directed in consideration of enterprise-wide risk management objectives. Most importantly, these are intended to ensure solid funding of the insurance subsidiaries' long-term obligations to policyholders and other beneficiaries, as well as the long-term stability of the subsidiaries’ capital accounts. To this end, the investment portfolio contains no significant insurance risk-correlated asset exposures to real estate, mortgage-backed securities, collateralized debt obligations ("CDO's"), derivatives, hybrid securities, or illiquid private equity and hedge fund investments. Moreover, the Company does not engage in hedging or securities lending transactions, nor does it invest in securities whose values are predicated on non-regulated financial instruments exhibiting amorphous or unfunded counter-party risk attributes.

26



As of June 30, 2018, the consolidated investment portfolio reflected an allocation of approximately 75% to fixed-maturity and short-term investments, and 25% to high quality, dividend-paying equity securities. The asset quality of the fixed maturity portfolio has remained at high levels.

Changes in shareholders' equity per share are reflected in the following table. As shown, these resulted mostly from net income, dividend payments to shareholders, and changes in the value of invested assets carried at fair value.
 
Shareholders' Equity Per Share
 
Quarter
 
 
 
Year
 
Ended
 
Six Months Ended
 
Ended
 
June 30,
 
June 30,
 
Dec. 31,
 
2018
 
2018
 
2017
 
2017
Beginning balance
$
16.82

 
$
17.72

 
$
17.16

 
$
17.16

Changes in shareholders' equity:
 
 
 
 
 
 
 
 
 
 
 
Post-tax net operating income (loss)
 
0.47

 
 
0.87

 
 
0.77

 
 
1.21

Post-tax net realized investment gains (losses)
 
0.08

 
 
0.13

 
 
0.05

 
 
0.93

Post-tax net unrealized investment gains (losses) on
 
 
 
 
 
 
 
 
 
 
 
securities carried at fair value:
 
 
 
 
 
 
 
 
 
 
 
Reported in net income (loss)
 
0.11

 
 
(0.30
)
 
 

 
 

Reported as other comprehensive income (loss)
 
(0.17
)
 
 
(0.56
)
 
 
0.18

 
 
0.28

Subtotal
 
(0.06
)
 
 
(0.86
)
 
 
0.18

 
 
0.28

Total post-tax realized and unrealized
 
 
 
 
 
 
 
 
 
 
 
investment gains (losses)
 
0.02

 
 
(0.73
)
 
 
0.23

 
 
1.21

Cash dividends (a)
 
(0.1950
)
 
 
(0.3900
)
 
 
(0.3800
)
 
 
(1.7600
)
Debt conversion, stock issuance, and other transactions
 
(0.04
)
 
 
(0.39
)
 
 
0.03

 
 
(0.10
)
Net change
 
0.26

 
 
(0.64
)
 
 
0.65

 
 
0.56

Ending balance
$
17.08

 
$
17.08

 
$
17.81

 
$
17.72

Percentage change for the period
 
1.5
%
 
 
(3.6
)%
 
 
3.8
%
 
 
3.3
%
__________________
(a)
Full year 2017 includes a special cash dividend of $1.00 per share.

Capitalization - The following table shows the components of ORI’s total capitalization. The most significant change during the fiscal twelve-months ended June 30, 2018 relates to the completed conversion of the 3.75% convertible senior notes into ORI common stock in March 2018.
 
 
Capitalization
 
 
June 30,
 
December 31,
 
June 30,
 
 
2018
 
2017
 
2017
Debt:
 
 
 
 
 
 
 
 
 
3.75% Convertible Senior Notes due 2018
 
$

 
$
470.6

 
$
548.6

4.875% Senior Notes due 2024
 
 
396.5

 
 
396.2

 
 
395.9

3.875% Senior Notes due 2026
 
 
545.4

 
 
545.1

 
 
544.8

ESSOP debt
 
 

 
 
4.2

 
 
4.2

Other miscellaneous debt with an average yield of 3.13%
 
 
32.4

 
 
32.4

 
 
32.4

Total debt
 
 
974.4

 
 
1,448.7

 
 
1,526.1

Common shareholders' equity
 
 
5,103.4

 
 
4,733.3

 
 
4,650.8

Total capitalization
 
$
6,077.9

 
$
6,182.0

 
$
6,176.9

 
 
 
 
 
 
 
 
 
 
Capitalization ratios:
 
 
 
 
 
 
 
 
 
Debt
 
 
16.0
%
 
 
23.4
%
 
 
24.7
%
Common shareholders' equity
 
 
84.0

 
 
76.6

 
 
75.3

Total
 
 
100.0
%
 
 
100.0
%
 
 
100.0
%
 



27



DETAILED MANAGEMENT ANALYSIS

This section of the Management Analysis of Financial Position and Results of Operations is additive to and should be read in conjunction with the Executive Summary which precedes it.

FINANCIAL ACCOUNTING AND REPORTING POLICIES

The Company's annual and interim financial statements incorporate a large number and types of estimates relative to matters which are highly uncertain at the time the estimates are made. The estimation process required of an insurance enterprise such as Old Republic is by its very nature highly dynamic inasmuch as it necessitates a continuous evaluation, analysis, and quantification of factual data as it becomes known to the Company. As a result, actual experienced outcomes can differ from the estimates made at any point in time and thus affect future periods' reported revenues, expenses, net income or loss, and financial condition.

Old Republic believes that its most critical accounting estimates relate to: a) the determination of other-than-temporary impairments ("OTTI") in the value of fixed maturity investments; b) the valuation of deferred income tax assets; c) the establishment and recoverability of deferred acquisition costs; d) the recoverability of reinsured paid and/or outstanding losses; and e) the establishment of reserves for losses and loss adjustment expenses. The major assumptions and methods used in setting these estimates are discussed in the Company's 2017 Annual Report on Form 10-K.

FINANCIAL POSITION

The Company's financial position at June 30, 2018 reflected increases in assets and common shareholders' equity of 0.3% and 7.8%, respectively, and a decline in liabilities of 2.2% when compared to the immediately preceding year-end. Cash and invested assets represented 67.2% and 69.8% of consolidated assets as of June 30, 2018 and December 31, 2017, respectively. As of June 30, 2018, the cash, accrued investment income, and invested asset base declined by 3.4% to $13,072.0.

Investments - During the first six months of 2018 and 2017, the Company committed the majority of investable funds to short to intermediate-term fixed maturity securities and higher yielding publicly traded large capitalization common shares. At both June 30, 2018 and 2017, approximately 99% of the Company's investments consisted of marketable securities. Old Republic continues to adhere to its long-term policy of investing primarily in investment grade, marketable securities. The investment portfolio contains no significant insurance risk-correlated asset exposures to real estate, mortgage-backed securities, collateralized debt obligations ("CDO's"), derivatives, hybrid securities, or illiquid private equity and hedge fund investments. Moreover, the Company does not engage in hedging or securities lending transactions, nor does it invest in securities whose values are predicated on non-regulated financial instruments exhibiting amorphous or unfunded counter-party risk attributes. At June 30, 2018, the Company had no fixed maturity investments in default as to principal and/or interest.

Short-term maturity investment positions reflect a large variety of seasonal and intermediate-term factors including current operating needs, expected operating cash flows, seasonality of quarterly cash flow, debt maturities, and investment strategy considerations. Accordingly, the future level of short-term investments will vary and respond to the interplay of these factors and may, as a result, increase or decrease from current levels.

The Company does not own or utilize derivative financial instruments for the purpose of hedging, enhancing the overall return of its investment portfolio, or reducing the cost of its debt obligations. With regard to its equity portfolio, the Company does not own any options nor does it engage in any type of option writing. Traditional investment management tools and techniques are employed to address the yield and valuation exposures of the invested assets base. The long-term fixed maturity investment portfolio is managed so as to limit various risks inherent in the bond market. Credit risk is addressed through asset diversification and the purchase of investment grade securities. Reinvestment rate risk is reduced by concentrating on non-callable issues, and by taking asset-liability matching considerations into account. Purchases of mortgage and asset backed securities, which have variable principal prepayment options, are generally avoided. Market value risk is limited through the purchase of bonds of intermediate maturity. The combination of these investment management practices is expected to produce a more stable long-term fixed maturity investment portfolio that is not subject to extreme interest rate sensitivity and principal deterioration.

The fair value of the Company's long-term fixed maturity investment portfolio is sensitive, however, to fluctuations in the level of interest rates, but not materially affected by changes in anticipated cash flows caused by any prepayments. The impact of interest rate movements on the long-term fixed maturity investment portfolio generally affects net unrealized gains or losses. As a general rule, rising interest rates enhance currently available yields but typically lead to a reduction in the fair value of existing fixed maturity investments. By contrast, a decline in such rates reduces currently available yields but usually serves to increase the fair value of the existing fixed maturity investment portfolio. All such changes in fair value of available for sale securities are reflected, net of deferred income taxes, directly in the shareholders' equity account, and as a separate component of the statement of comprehensive income. Fixed maturity securities classified as held to maturity are carried at amortized cost, and therefore, fluctuations in unrealized gains and losses do not impact shareholders' equity. Given the Company's inability to forecast or control the movement of interest rates, Old Republic sets the maturity spectrum of its fixed maturity securities portfolio within parameters of estimated liability payouts, and focuses the overall portfolio on high quality investments. By so doing, Old Republic believes it is reasonably assured of its ability to hold securities to maturity as it may deem necessary in changing environments, and of ultimately recovering their aggregate cost.

28




Possible future declines in fair values for Old Republic's available for sale fixed maturity portfolio would negatively affect the common shareholders' equity account at any point in time, but would not necessarily result in the recognition of realized investment losses. The Company reviews the status and fair value changes of each of its fixed maturity investments on at least a quarterly basis during the year, and estimates of other-than-temporary impairments in the portfolio's value are evaluated and established at each quarterly balance sheet date. In reviewing investments for other-than-temporary impairment, the Company, in addition to a security's market price history, considers the totality of such factors as the issuer's operating results, financial condition and liquidity, its ability to access capital markets, credit rating trends, most current audited financial statements, industry and securities markets conditions, and analyst expectations to reach its conclusions. Sudden fair value declines caused by such adverse developments as newly emerged or imminent bankruptcy filings, issuer default on significant obligations, or reports of financial accounting developments that bring into question the validity of the issuer's previously reported earnings or financial condition, are recognized as realized losses as soon as credible publicly available information emerges to confirm such developments. In the event the Company's estimate of other-than-temporary impairments is insufficient at any point in time, future periods' net income (loss) would be affected adversely by the recognition of additional impairment losses, but its financial condition would not necessarily be affected adversely inasmuch as such losses, or a portion of them, could have been recognized previously as unrealized losses in shareholders' equity.

The following tables show certain information relating to the Company's fixed maturity and equity portfolios as of the dates shown:
Credit Quality Ratings of Fixed Maturity Securities (a)
 
 
 
 
 
June 30,
 
December 31,
 
2018
 
2017
Aaa
20.6
%
 
21.6
%
Aa
13.3

 
12.9

A
31.9

 
31.8

Baa
28.1

 
27.5

Total investment grade
93.9

 
93.8

All other (b)
6.1

 
6.2

Total
100.0
%
 
100.0
%
__________

(a)
Credit quality ratings referred to herein are a blend of those assigned by the major credit rating agencies for U.S. and Canadian Governments, Agencies, Corporates and Municipal issuers, which are converted to the above ratings classifications.
(b)
"All other" includes non-investment grade or non-rated issuers.
Gross Unrealized Losses Stratified by Industry Concentration for Non-Investment Grade Fixed Maturity Securities
 
 
 
 
 
 
 
 
June 30, 2018
 
Amortized
Cost
 
Gross
Unrealized
Losses
 
Fixed Maturity Securities by Industry Concentration:
 
 
 
 
 
 
Energy
 
$
161.2

 
$
4.6

 
 
Health Care
 
44.1

 
3.1

 
 
Basic Industry
 
30.5

 
1.4

 
 
Consumer Durable
 
23.6

 
.8

 
 
Other (includes 7 industry groups)
 
144.7

 
2.0

 
 
 
Total
 
$
404.3

(c)
$
12.0

 
__________

(c)
Represents 4.4% of the total fixed maturity securities portfolio.



29



Gross Unrealized Losses Stratified by Industry Concentration for Investment Grade Fixed Maturity Securities
 
 
 
 
 
 
 
 
June 30, 2018
 
Amortized
Cost
 
Gross
Unrealized
Losses
 
Fixed Maturity Securities by Industry Concentration:
 
 
 
 
 
 
U.S. Governments & Agencies
 
$
1,149.4

 
$
26.0

 
 
Utilities
 
841.9

 
23.8

 
 
Municipal
 
880.1

 
22.7

 
 
Industrial
 
513.0

 
13.9

 
 
Other (includes 17 industry groups)
 
2,800.2

 
62.7

 
 
 
Total
 
$
6,184.9

(d)
$
149.3

 
__________

(d)
Represents 67.6% of the total fixed maturity securities portfolio.

Gross Unrealized Losses Stratified by Industry Concentration for Equity Securities
 
 
 
 
 
 
 
 
June 30, 2018
 

Cost
 
Gross
Unrealized
Losses
 
Equity Securities by Industry Concentration:
 
 
 
 
 
 
Consumer Non Durable
 
$
133.1

 
$
17.2

 
 
Utilities
 
86.4

 
11.0

 
 
Technology
 
76.6

 
6.8

 
 
Telecom
 
128.8

 
5.1

 
 
Other (includes 4 industry groups)
 
209.4

 
8.3

 
 
 
Total
 
$
634.6

(e)
$
48.5

(f)
__________

(e)
Represents 23.1% of the total equity securities portfolio.
(f)
Represents 1.8% of the cost of the total equity securities portfolio, while gross unrealized gains represent 20.9% of the portfolio.
Gross Unrealized Losses Stratified by Maturity Ranges for All Fixed Maturity Securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amortized Cost
of Fixed Maturity Securities
 
Gross Unrealized Losses
 
June 30, 2018
 
All
 
Non-
Investment
Grade Only
 
All
 
Non-
Investment
Grade Only
 
Maturity Ranges:
 
 
 
 
 
 
 
 
 
Due in one year or less
 
$
284.9

 
$

 
$
.9

 
$

 
Due after one year through five years
 
3,038.9

 
234.1

 
56.9

 
4.6

 
Due after five years through ten years
 
3,237.3

 
161.6

 
102.5

 
7.0

 
Due after ten years
 
27.9

 
8.5

 
1.0

 
.4

 
 
Total
 
$
6,589.2

 
$
404.3

 
$
161.4

 
$
12.0

 


30



Gross Unrealized Losses Stratified by Duration and Amount of Unrealized Losses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amount of Gross Unrealized Losses
 
June 30, 2018
 
Less than
20% of
Cost
 
20% to
50%
of Cost
 
More than
50% of Cost
 
Total Gross
Unrealized
Loss
 
Number of Months in Unrealized Loss Position:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed Maturity Securities:
 
 
 
 
 
 
 
 
 
 
One to six months
 
$
84.2

 
$
2.4

 
$

 
$
86.6

 
 
Seven to twelve months
 
21.5

 

 

 
21.5

 
 
More than twelve months
 
53.2

 

 

 
53.2

 
 
 
Total
 
$
159.0

 
$
2.4

 
$

 
$
161.4

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of Issues in Unrealized Loss Position:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed Maturity Securities:
 
 
 
 
 
 
 
 
 
 
One to six months
 
914

 
1

 

 
915

 
 
Seven to twelve months
 
149

 

 

 
149

 
 
More than twelve months
 
346

 

 

 
346

 
 
 
Total
 
1,409

 
1

 

 
1,410

(g)
__________

(g)
At June 30, 2018 the number of issues in an unrealized loss position represent 72.3% of the total number of such fixed maturity issues held by the Company.

The aging of issues with unrealized losses employs balance sheet date fair value comparisons with an issue's amortized cost. The percentage reduction from such cost reflects the decline as of a specific point in time (June 30, 2018 in the above table) and, accordingly, is not indicative of a security's value having been consistently below its cost at the percentages shown nor throughout the periods shown.
Age Distribution of Fixed Maturity Securities
 
 
 
 
 
 
 
 
 
 
 
 
June 30,
 
December 31,
 
 
 
 
 
2018
 
2017
 
Maturity Ranges:
 
 
 
 
 
Due in one year or less
7.2
%
 
9.2
%
 
 
Due after one year through five years
49.5

 
45.5

 
 
Due after five years through ten years
42.1

 
44.1

 
 
Due after ten years through fifteen years
1.0

 
1.0

 
 
Due after fifteen years
.2

 
.2

 
 
 
Total
100.0
%
 
100.0
%
 
 
 
 
 
 
 
 
 
Average Maturity in Years
4.6

 
4.7

 
Duration (h)
4.1

 
4.2

 
___________

(h)
Duration is used as a measure of bond price sensitivity to interest rate changes. A duration of 4.1 as of June 30, 2018 implies that a 100 basis point parallel increase in interest rates from current levels would result in a possible decline in the fair value of the long-term fixed maturity investment portfolio of approximately 4.1%.

31



Composition of Unrealized Gains (Losses)
 
 
 
 
 
 
 
 
 
 
 
 
June 30,
 
December 31,
 
 
 
 
 
2018
 
2017
 
Available for Sale:
 
 
 
 
Fixed Maturity Securities:
 
 
 
 
 
Amortized cost
$
8,087.9

 
$
8,162.2

 
 
Estimated fair value
7,994.6

 
8,282.3

 
 
Gross unrealized gains
45.3

 
147.4

 
 
Gross unrealized losses
(138.7
)
 
(27.3
)
 
 
 
Net unrealized gains (losses)
$
(93.3
)
 
$
120.0

 
 
 
 
 
 
 
 
 
Equity Securities:
 
 
 
 
 
Original cost
$
2,746.5

 
$
2,629.9

 
 
Estimated fair value
3,271.4

 
3,265.5

 
 
Gross unrealized gains
573.5

 
658.8

 
 
Gross unrealized losses
(48.5
)
 
(23.2
)
 
 
 
Net unrealized gains (losses)
$
524.9

(i)
$
635.6

 
___________

(i)
Effective January 1, 2018, changes in fair value of equity securities are recognized in net income. See Note 3.

Other Assets - Among other major assets, substantially all of the Company's receivables are not past due. Reinsurance recoverable balances on paid or estimated unpaid losses are deemed recoverable from solvent reinsurers or have otherwise been reduced by allowances for estimated amounts unrecoverable. Deferred policy acquisition costs are estimated by taking into account the direct costs relating to the successful acquisition of new or renewal insurance contracts and evaluating their recoverability on the basis of recent trends in claims costs. The Company's deferred policy acquisition cost balances have not fluctuated substantially from period-to-period, and do not represent significant percentages of assets or shareholders' equity.

Liquidity - The parent holding company meets its liquidity and capital needs principally through dividends and interest on intercompany financing arrangements paid by its subsidiaries. The insurance subsidiaries' ability to pay cash dividends to the parent company is generally restricted by law or subject to approval of the insurance regulatory authorities of the states in which they are domiciled. The Company can receive up to $554.6 in dividends from its subsidiaries in 2018 without the prior approval of regulatory authorities. The liquidity achievable through such permitted dividend payments is considered sufficient to cover the parent holding company's currently expected cash outflows represented mostly by interest and scheduled repayments on outstanding debt, reasonably anticipated cash dividend payments to shareholders, modest operating expenses, and the near-term capital needs of its operating company subsidiaries.

Capitalization - Old Republic's total capitalization of $6,077.9 at June 30, 2018 consisted of debt of $974.4 and common shareholders' equity of $5,103.4. Changes in the common shareholders' equity account reflect primarily net income for the period then ended, changes in the fair value of fixed maturity securities, dividend payments and the conversion of all the 2018 Convertible Senior Notes into the Company's common stock. At June 30, 2018, the Company's consolidated debt to equity ratio was 19.1%.

Old Republic has paid a cash dividend without interruption since the World War II year of 1942 (77 years), and it has raised the annual cash dividend payout for each of the past 37 years. The dividend rate is reviewed and approved by the Board of Directors on a quarterly basis each year. In establishing each year's cash dividend rate the Company does not follow a strict formulaic approach. Rather, it favors a gradual rise in the annual dividend rate that is largely reflective of long-term consolidated operating earnings trends. Accordingly, each year's dividend rate is set judgmentally in consideration of such key factors as the dividend paying capacity of the Company's insurance subsidiaries, the trends in average annual statutory and GAAP earnings for the five to ten most recent calendar years, and management's long-term expectations for the Company's consolidated business and its individual operating subsidiaries.

Under state insurance regulations, the Company's three mortgage guaranty insurance subsidiaries are required to operate at a maximum risk to capital ratio of 25:1 or otherwise hold minimum amounts of capital based on specified formulas. Since the Company's mortgage insurance subsidiaries have discontinued writing new business the risk-to-capital ratio considerations are therefore no longer of consequence.


32



RESULTS OF OPERATIONS
 
Revenues: Premiums & Fees

Pursuant to GAAP applicable to the insurance industry, revenues are recognized as follows:

Substantially all general insurance premiums pertain to annual policies and are reflected in income on a pro-rata basis in association with the related benefits, claims and expenses. Earned but unbilled premiums are generally taken into income on the billing date, while adjustments for retrospective premiums, commissions and similar charges or credits are accrued on the basis of periodic evaluations of current underwriting experience and contractual obligations.

Title premium and fee revenues stemming from the Company's direct operations (which include branch offices of its title insurers and wholly owned agency subsidiaries) represent approximately 27% of 2018 consolidated title business revenues. Such premiums are generally recognized as income at the escrow closing date which approximates the policy effective date. Fee income related to escrow and other closing services is recognized when the related services have been performed and completed. The remaining 73% of consolidated title premium and fee revenues is produced by independent title agents and underwritten title companies. Rather than making estimates that could be subject to significant variance from actual premium and fee production, the Company recognizes revenues from those sources upon receipt. Such receipts can reflect a three to four month lag relative to the effective date of the underlying title policy, and are offset concurrently by production expenses and claim reserve provisions.

The Company's mortgage guaranty premiums primarily stem from monthly installments paid on long-duration, guaranteed renewable insurance policies. Such premiums are written and earned in the month coverage is effective. With respect to relatively few annual or single premium policies, earned premiums are largely recognized on a pro-rata basis over the terms of the policies. As described more fully in the RFIG Run-off Business' Risk Factors for premium income and long-term claim exposures in the Company's 2017 Annual Report on Form 10-K under Item 1A - Risk Factors, revenue recognition for insured loans is not appropriately matched to the risk exposure and the consequent recognition of both normal and catastrophic loss occurrences.

The major sources of Old Republic's consolidated earned premiums and fees for the periods shown were as follows:
 
Earned Premiums and Fees
 
General
 
Title
 
RFIG Run-off
 
Other
 
Total
 
% Change
from prior
period
Years Ended December 31:
 
 
 
 
 
 
 
 
 
 
 
2015
$
2,894.7

 
$
2,045.3

 
$
219.9

 
$
19.4

 
$
5,179.4

 
7.7
%
2016
2,936.3

 
2,206.6

 
170.0

 
20.1

 
5,333.2

 
3.0

2017
3,110.8

 
2,287.2

 
122.9

 
18.8

 
5,539.7

 
3.9

Six Months Ended June 30:
 
 
 
 
 
 
 
 
 
 
 
2017
1,512.3

 
1,073.6

 
68.4

 
9.4

 
2,663.9

 
4.1

2018
1,599.7

 
1,102.8

 
41.0

 
6.9

 
2,750.6

 
3.3

Quarters Ended June 30:
 
 
 
 
 
 
 
 
 
 
 
2017
769.5

 
555.6

 
32.9

 
4.7

 
1,362.8

 
3.7

2018
$
808.5

 
$
588.9

 
$
19.6

 
$
3.0

 
$
1,420.2

 
4.2
%

The percentage allocation of net premiums earned for major insurance coverages in the General Insurance Group was as follows:
 
General Insurance Earned Premiums by Type of Coverage
 
Workers'
Compensation
 
Commercial
Automobile
(mostly
trucking)
 
Financial
Indemnity
 
Inland
Marine
and
Property
 
General
Liability
 
Other
Years Ended December 31:
 
 
 
 
 
 
 
 
 
 
 
2015
39.0
%
 
32.1
%
 
4.1
%
 
7.4
%
 
5.9
%
 
11.5
%
2016
36.5

 
33.7

 
4.3

 
7.4

 
5.6

 
12.5

2017
33.6

 
34.6

 
4.9

 
7.6

 
6.3

 
13.0

Six Months Ended June 30:
 
 
 
 
 
 
 
 
 
 
 
2017
34.6

 
34.3

 
4.6

 
7.5

 
6.0

 
13.0

2018
31.6

 
36.2

 
5.3

 
7.6

 
6.4

 
12.9

Quarters Ended June 30:
 
 
 
 
 
 
 
 
 
 
 
2017
33.7

 
34.7

 
4.5

 
7.6

 
5.8

 
13.7

2018
30.8
%
 
36.2
%
 
5.2
%
 
7.6
%
 
6.3
%
 
13.9
%

33




The following table shows the percentage distribution of Title Group premium and fee revenues by production sources:

Title Premium and Fee Production by Source
 
Direct
Operations
 
Independent
Title
Agents &
Other
Years Ended December 31:
 
 
 
2015
27.2
%
 
72.8
%
2016
27.9

 
72.1

2017
26.9

 
73.1

Six Months Ended June 30:
 
 
 
2017
27.6

 
72.4

2018
26.8

 
73.2

Quarters Ended June 30:
 
 
 
2017
29.4

 
70.6

2018
28.1
%
 
71.9
%

The following tables provide information on production and related risk exposure trends for Old Republic's mortgage guaranty insurance operation:
 
Earned Premiums
 
Persistency
Premium and Persistency Trends by Type:
Direct
 
Net
 
Traditional
Primary
 
Bulk
Years Ended December 31:
 
 
 
 
 
 
 
2015
$
201.1

 
$
195.9

 
79.9
%
 
56.1
%
2016
157.1

 
154.1

 
77.7

 
72.8

2017
110.4

 
109.8

 
77.9

 
78.2

Six Months Ended June 30:
 
 
 
 
 
 
 
2017
60.8

 
60.5

 
77.5

 
73.0

2018
40.2

 
40.2

 
78.0
%
 
74.2
%
Quarters Ended June 30:
 
 
 
 
 
 
 
2017
29.3

 
29.1

 
 
 
 
2018
$
19.2

 
$
19.2

 
 
 
 

As previously discussed, the Company's flagship mortgage guaranty insurance carrier ceased the underwriting of new policies effective August 31, 2011 and the existing book of business was placed in run-off operating mode.

While there is no consensus in the marketplace as to the precise definition of "sub-prime", Old Republic generally views loans with credit (FICO) scores less than 620, loans underwritten with reduced levels of documentation and loans with loan to value ratios in excess of 95% as having a higher risk of default. Risk in force concentrations by these attributes are disclosed in the following tables for both traditional primary and bulk production. Premium rates for loans exhibiting greater risk attributes are typically higher in anticipation of potentially greater defaults and claim costs. Additionally, bulk insurance policies, which represent 7.0% of total net risk in force as of June 30, 2018, are frequently subject to deductibles and aggregate stop losses which serve to limit the overall risk on a pool of insured loans.
Net Risk in Force
Net Risk in Force By Type:
Traditional
Primary
 
Bulk
 
Other
 
Total
As of December 31:
 
 
 
 
 
 
 
2015
$
6,414.9

 
$
428.2

 
$
24.1

 
$
6,867.3

2016
4,987.9

 
359.5

 
20.5

 
5,367.9

2017
3,888.0

 
292.4

 
12.1

 
4,192.6

As of June 30:
 
 
 
 
 
 
 
2017
4,421.1

 
330.7

 
19.6

 
4,771.6

2018
$
3,449.3

 
$
260.2

 
$
11.5

 
$
3,721.2


34



Analysis of Risk in Force
Risk in Force Distribution By FICO Scores:
FICO less
than 620
 
FICO 620
to 680
 
FICO
Greater
than 680
 
Unscored/
Unavailable
 
 
 
 
 
 
 
 
Traditional Primary:
 
 
 
 
 
 
 
As of December 31:
 
 
 
 
 
 
 
2015
6.8
%
 
29.3
%
 
63.0
%
 
.9
%
2016
7.2

 
30.5

 
61.5

 
.8

2017
7.5

 
31.5

 
60.2

 
.8

As of June 30:
 
 
 
 
 
 
 
2017
7.3

 
30.9

 
61.0

 
.8

2018
7.7
%
 
31.9
%
 
59.7
%
 
.7
%
 
 
 
 
 
 
 
 
Bulk(a):
 
 
 
 
 
 
 
As of December 31:
 
 
 
 
 
 
 
2015
28.4
%
 
32.2
%
 
39.2
%
 
.2
%
2016
29.9

 
32.0

 
38.0

 
.1

2017
31.8

 
31.7

 
36.3

 
.2

As of June 30:
 
 
 
 
 
 
 
2017
30.7

 
31.9

 
37.2

 
.2

2018
32.9
%
 
31.4
%
 
35.5
%
 
.2
%

Risk in Force Distribution By Loan to Value ("LTV") Ratio:
LTV
85.0
and below
 
LTV
85.01
to 90.0
 
LTV
90.01
to 95.0
 
LTV
Greater
than 95.0
 
 
 
 
 
 
 
 
Traditional Primary(b):
 
 
 
 
 
 
 
As of December 31:
 
 
 
 
 
 
 
2015
3.8
%
 
33.5
%
 
30.9
%
 
31.8
%
2016
3.8

 
32.1

 
30.6

 
33.5

2017
4.0

 
30.9

 
30.5

 
34.6

As of June 30:
 
 
 
 
 
 
 
2017
3.9

 
31.5

 
30.6

 
34.0

2018
4.0
%
 
30.6
%
 
30.2
%
 
35.2
%
 
 
 
 
 
 
 
 
Bulk(a):
 
 
 
 
 
 
 
As of December 31:
 
 
 
 
 
 
 
2015
48.3
%
 
28.0
%
 
11.9
%
 
11.8
%
2016
46.5

 
29.0

 
12.3

 
12.2

2017
45.3

 
29.9

 
12.6

 
12.2

As of June 30:
 
 
 
 
 
 
 
2017
46.0

 
29.2

 
12.8

 
12.0

2018
43.9
%
 
30.7
%
 
12.8
%
 
12.6
%
__________

(a)
Bulk pool risk in-force, which represented 9.1% of total bulk risk in-force at June 30, 2018 has been allocated pro-rata based on insurance in-force.

(b)
The LTV distribution reflects base LTV ratios which are determined prior to the impact of single premiums financed and paid at the time of loan origination.


35



Risk in Force Distribution By Top Ten States:
 
 
 
Traditional Primary
 
TX
 
FL
 
GA
 
IL
 
CA
 
NC
 
PA
 
NJ
 
VA
 
MD
As of December 31:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2015
7.1
%
 
7.5
%
 
5.9
%
 
5.5
%
 
4.9
%
 
4.7
%
 
4.3
%
 
4.2
%
 
3.4
%
 
3.4
%
2016
6.4

 
7.8

 
6.0

 
5.8

 
4.8

 
4.6

 
4.4

 
4.4

 
3.6

 
3.8

2017
5.9

 
8.1

 
6.0

 
6.1

 
4.8

 
4.4

 
4.3

 
4.6

 
3.7

 
4.2

As of June 30:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2017
6.1

 
7.9

 
6.0

 
6.0

 
4.8

 
4.5

 
4.3

 
4.6

 
3.7

 
4.0

2018
5.6
%
 
8.3
%
 
6.0
%
 
6.3
%
 
4.8
%
 
4.2
%
 
4.3
%
 
4.7
%
 
3.8
%
 
4.4
%
 
 
 
Bulk (a)
 
TX
 
FL
 
GA
 
IL
 
CA
 
AZ
 
PA
 
NJ
 
OH
 
NY
As of December 31:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2015
5.1
%
 
8.9
%
 
4.7
%
 
4.0
%
 
12.8
%
 
2.8
%
 
3.6
%
 
4.4
%
 
4.2
%
 
7.4
%
2016
5.3

 
8.6

 
4.9

 
4.2

 
12.4

 
2.9

 
3.7

 
4.1

 
4.2

 
7.4

2017
5.4

 
8.3

 
5.1

 
4.4

 
12.4

 
3.0

 
3.8

 
3.4

 
4.4

 
7.8

As of June 30:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2017
5.2

 
8.6

 
5.0

 
4.3

 
12.6

 
2.9

 
3.7

 
3.8

 
4.3

 
7.5

2018
5.5
%
 
8.2
%
 
5.3
%
 
4.5
%
 
12.4
%
 
2.9
%
 
3.9
%
 
3.2
%
 
4.6
%
 
7.1
%
Risk in Force Distribution By Level of Documentation:
Full
Documentation
 
Reduced
Documentation
Traditional Primary:
 
 
 
As of December 31:
 
 
 
2015
92.6
%
 
7.4
%
2016
92.4

 
7.6

2017
92.3

 
7.7

As of June 30:
 
 
 
2017
92.3

 
7.7

2018
92.2
%
 
7.8
%
 
 
 
 
Bulk (a):
 
 
 
As of December 31:
 
 
 
2015
66.6
%
 
33.4
%
2016
68.0

 
32.0

2017
69.4

 
30.6

As of June 30:
 
 
 
2017
68.4

 
31.6

2018
71.3
%
 
28.7
%
__________

(a)
Bulk pool risk in-force, which represented 9.1% of total bulk risk in-force at June 30, 2018, has been allocated pro-rata based on insurance in-force.

36



Risk in Force Distribution By Loan Type:
Fixed Rate
& ARMs
with Resets
>=5 Years
 
ARMs with
Resets <5
years
Traditional Primary:
 
 
 
As of December 31:
 
 
 
2015
97.3
%
 
2.7
%
2016
97.2

 
2.8

2017
97.2

 
2.8

As of June 30:
 
 
 
2017
97.2

 
2.8

2018
97.2
%
 
2.8
%
 
 
 
 
Bulk (a):
 
 
 
As of December 31:
 
 
 
2015
71.8
%
 
28.2
%
2016
71.3

 
28.7

2017
70.1

 
29.9

As of June 30:
 
 
 
2017
70.7

 
29.3

2018
69.3
%
 
30.7
%
__________

(a)
Bulk pool risk in-force, which represented 9.1% of total bulk risk in-force at June 30, 2018, has been allocated pro-rata based on insurance in-force.

The Company's consumer credit indemnity ("CCI") earned premiums and related risk in force included in the table below have reflected a generally declining trend. The decline is largely due to a discontinuation of active sales efforts since 2008 and from the elimination of a major bank as a source of significant premiums and claims in the third quarter of 2017. The following table shows CCI net premiums earned during the indicated periods and the maximum calculated risk in force at the end of the respective periods. Net earned premiums include additional premium adjustments arising from the variable claim experience of individual policies subject to retrospective rating plans. Risk in force reflects estimates of the maximum risk exposures at the inception of individual policies adjusted for cumulative claim costs and the lower outstanding loan balances attributed to such policies through the end of the periods shown below.
 
Net CCI Earned Premiums
 
Risk in
Force
Years Ended December 31:
 
 
 
2015
$
23.9

 
$
776.9

2016
15.8

 
699.7

2017
13.0

 
140.9

Six Months Ended June 30:
 
 
 
2017
7.9

 
650.2

2018
.8

 
$
129.6

Quarters Ended June 30:
 
 
 
2017
3.7

 
 
2018
$
.4

 
 

Revenues: Net Investment Income

Net investment income is affected by trends in interest and dividend yields for the types of securities in which the Company's funds are invested during each reporting period. The following tables reflect the segmented and consolidated invested asset bases as of the indicated dates, and the investment income earned and resulting yields on such assets. Since the Company can exercise little control over fair values, yields are evaluated on the basis of investment income earned in relation to the cost of the underlying invested assets, though yields based on the fair values of such assets are also shown in the statistics below.

37



 
Invested Assets at Cost
 
Fair
Value
Adjust-
ment
 
Invested
Assets at
Fair
Value (a)
 
General
 
Title
 
RFIG Run-off
 
Corporate
and Other
 
Total
 
As of December 31:
 
 
 
 
 
 
 
 
 
 
 
 
 
2016
$
9,255.8

 
$
1,100.2

 
$
685.3

 
$
1,073.6

 
$
12,115.1

 
$
642.5

 
$
12,757.7

2017
9,702.7

 
1,106.2

 
545.9

 
1,206.9

 
12,561.9

 
756.1

 
13,318.0

As of June 30:
 
 
 
 
 
 
 
 
 
 
 
 
 
2017
9,324.1

 
1,069.3

 
607.9

 
1,221.9

 
12,223.5

 
716.7

 
12,940.2

2018
$
9,903.3

 
$
1,057.9

 
$
618.5

 
$
860.6

 
$
12,440.5

 
$
431.6

 
$
12,872.1

__________

(a) These balances include fixed maturity securities classified as held to maturity which are reported and reflected herein at amortized cost.

 
Net Investment Income
 
Yield at
 
General
 
Title
 
RFIG Run-off
 
Corporate
and Other
 
Total
 

Cost
 
Fair
Value
Years Ended
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31:
 
 
 
 
 
 
 
 
 
 
 
 
 
2015
$
312.1

 
$
34.0

 
$
25.1

 
$
17.2

 
$
388.6

 
3.61
%
 
3.49
%
2016
312.1

 
36.2

 
23.2

 
15.4

 
387.0

 
3.34

 
3.23

2017
318.9

 
37.3

 
21.7

 
31.4

 
409.4

 
3.32

 
3.14

Six Months Ended
 
 
 
 
 
 
 
 
 
 
 
 
 
June 30:
 
 
 
 
 
 
 
 
 
 
 
 
 
2017
157.9

 
18.7

 
10.9

 
14.6

 
202.3

 
3.32

 
3.15

2018
167.7

 
19.0

 
10.8

 
15.2

 
212.7

 
3.40

 
3.25

Quarters Ended
 
 
 
 
 
 
 
 
 
 
 
 
 
June 30:
 
 
 
 
 
 
 
 
 
 
 
 
 
2017
79.1

 
9.2

 
5.3

 
7.3

 
101.0

 
3.31

 
3.13

2018
$
84.4

 
$
9.5

 
$
5.4

 
$
7.4

 
$
106.9

 
3.45
%
 
3.33
%

Revenues: Net Investment Gains (Losses)

The Company's investment policies are not designed to maximize or emphasize the realization of investment gains. Rather, these policies aim for a stable source of income from interest and dividends, protection of capital, and the providing of sufficient liquidity to meet insurance underwriting and other obligations as they become payable in the future. Dispositions of fixed maturity securities generally arise from scheduled maturities and early calls; for the first six months of 2018 and 2017, 72.3% and 56.3%, respectively, of all such dispositions resulted from these occurrences. Dispositions of securities at a realized gain or loss reflect such factors as ongoing assessments of issuers' business prospects, allocation to industry sectors, changes in credit quality, and tax planning considerations. Effective January 1, 2018, unrealized gains and losses from changes in fair value of equity securities are also included as revenues and in pretax income. The combination of all realized investment gains or losses and unrealized investment gains or losses on equity securities can cause variances in period-to-period results, which in the Company's view, are not indicative of any particular trend or result in the basics of its insurance business.

The following table reflects the composition of net investment gains or losses for the periods shown.

38



 
Realized Investment Gains (Losses) from Actual Sale Transactions
 
Impairment Losses on Securities
 
Unrealized Gains (Losses) from Changes in Fair Value of Equity Securities
 
 
 
Fixed
Maturity
Securities
 
Equity
Securities
and Miscel-
laneous
Investments
 
Total
 
Fixed
Maturity
Securities
 
Miscel-
laneous
Investments
 
Total
 
 
Investment Gains (Losses)
Years Ended
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31:
 
 

 
 
 
 
 
 
 
 
 
 
 
 
2015
$
16.3

 
$
75.0

 
$
91.3

 
$

 
$

 
$

 
$

 
$
91.3

2016
7.8

 
69.9

 
77.8

 
(4.9
)
 

 
(4.9
)
 

 
72.8

2017
16.6

 
194.9

 
211.6

 

 

 

 

 
211.6

Six Months Ended
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
June 30:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2017
9.5

 
12.1

 
21.7

 

 

 

 

 
21.7

2018
.2

 
47.3

 
47.5

 

 

 

 
(110.6
)
 
(63.1
)
Quarters Ended
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
June 30:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2017
6.8

 

 
6.8

 

 

 

 

 
6.8

2018
$

 
$
32.0

 
$
32.0

 
$

 
$

 
$

 
$
41.3

 
$
73.3

 
Expenses: Benefits and Claims

The Company records the benefits, claims and related settlement costs that have been incurred during each accounting period. Total claim costs are affected by the amount of paid claims and the adequacy of reserve estimates established for current and prior years' claim occurrences at each balance sheet date.

The following table shows a breakdown of gross and net of reinsurance claim reserve estimates for major types of insurance coverages as of June 30, 2018 and December 31, 2017:
 
 
 
 
Claim and Loss Adjustment Expense Reserves
 
 
 
 
June 30, 2018
 
December 31, 2017
 
 
 
 
Gross
 
Net
 
Gross
 
Net
 
 
 
 
 
 
 
 
Workers' compensation
$
4,834.6

 
$
3,049.2

 
$
4,752.1

 
$
2,993.9

General liability
1,074.8

 
562.9

 
1,072.6

 
565.4

Commercial automobile (mostly trucking)
1,609.9

 
1,204.9

 
1,524.8

 
1,151.8

Other coverages
844.2

 
589.3

 
810.8

 
561.4

Unallocated loss adjustment expense reserves
229.3

 
210.3

 
225.1

 
198.8

 
 
Total general insurance reserves
8,593.0

 
5,616.8

 
8,385.6

 
5,471.5

Title
556.7

 
556.7

 
559.7

 
559.7

RFIG Run-off
223.9

 
223.9

 
271.7

 
271.7

Life and accident
18.8

 
12.4

 
20.4

 
13.5

 
 
Total claim and loss adjustment expense reserves
$
9,392.5

 
$
6,409.9

 
$
9,237.6

 
$
6,316.4

Asbestosis and environmental claim reserves included
 
 
 
 
 
 
 
 
in the above general insurance reserves:
 
 
 
 
 
 
 
 
 
Amount
$
111.1

 
$
91.3

 
$
117.4

 
$
96.4

 
 
% of total general insurance reserves
1.3
%
 
1.6
%
 
1.4
%
 
1.8
%

The Company's reserve for loss and loss adjustment expenses represents the accumulation of estimates of ultimate losses payable, including IBNR losses and loss adjustment expenses. The establishment of claim reserves by the Company's insurance subsidiaries is a reasonably complex and dynamic process influenced by a large variety of factors as further discussed below. Consequently, reserves established are a reflection of the opinions of a large number of persons, of the application and interpretation of historical precedent and trends, of expectations as to future developments, and of management's judgment in interpreting all such factors. At any point in time, the Company is exposed to the incurrence of possibly higher or lower than anticipated claim costs and the resulting changes in estimates are recorded in operations of the periods during which they are made. Increases to prior reserve estimates are often referred to as unfavorable development whereas any changes that decrease previous estimates of the Company's ultimate liability are referred to as favorable development.


39



Overview of Loss Reserving Process

The Company's reserve setting process reflects the nature of its insurance business and the operationally decentralized basis upon which it is conducted. Old Republic's general insurance operations encompasses a large variety of lines or classes of commercial insurance; it has negligible exposure to personal insurance coverages such as homeowners or private passenger automobile insurance that exhibit wide diversification of risks, significant frequency of claim occurrences, and high degrees of statistical credibility. Additionally, the Company's insurance subsidiaries do not provide significant amounts of insurance protection for premises; most of its property insurance exposures relate to cargo, incidental property, and insureds' inland marine assets. Consequently, the wide variety of policies issued and commercial insurance customers served require that loss reserves be analyzed and established in the context of the unique or different attributes of each block or class of business produced by the Company. For example, accident liability claims emanating from insured trucking companies or from general aviation customers become known relatively quickly, whereas claims of a general liability nature arising from the building activities of a construction company may emerge over extended periods of time. Similarly, claims filed pursuant to errors and omissions or directors and officers liability coverages are usually not prone to immediate evaluation or quantification inasmuch as many such claims may be litigated over several years and their ultimate costs may be affected by the vagaries of judged or jury verdicts. Approximately 92% of the general insurance group's claim reserves stem from liability insurance coverages for commercial customers which typically require more extended periods of investigation and at times protracted litigation before they are finally settled. As a consequence of these and other factors, Old Republic does not utilize a single, overarching loss reserving approach.

The Company prepares periodic analyses of its loss reserve estimates for its significant insurance coverages. It establishes point estimates for most losses on an insurance coverage line-by-line basis for individual subsidiaries, sub-classes, individual accounts, blocks of business or other unique concentrations of insurance risks such as directors and officers liability, that have similar attributes. Actuarially or otherwise derived ranges of reserve levels are not utilized as such in setting these reserves. Instead the reported reserves encompass the Company's best point estimates at each reporting date and the overall reserve level at any point in time therefore represents the compilation of a very large number of reported reserve estimates and the results of a variety of formula calculations largely driven by analysis of historical data. Favorable or unfavorable developments of prior year reserves are implicitly covered by the point estimates incorporated in total reserves at each balance sheet date. The Company does not project future variability or make an explicit provision for uncertainty when determining its best estimate of loss reserves. Over the most recent decade actual incurred losses have developed within a reasonable range of their original estimates.

Aggregate loss reserves consist of liability estimates for claims that have been reported ("case") to the Company's insurance subsidiaries and reserves for claims that have been incurred but not yet reported or whose ultimate costs may not become fully apparent until a future time. Additionally, the Company establishes unallocated loss adjustment expense reserves for loss settlement costs that are not directly related to individual claims. Such reserves are based on prior years' cost experience and trends, and are intended to cover the unallocated costs of claim departments' administration of case and IBNR claims over time. Long-term, disability-type workers' compensation reserves are discounted to present value based on interest rates that range from 3.5% to 4.0%.

A large variety of statistical analyses and formula calculations are utilized to provide for IBNR claim costs as well as additional costs that can arise from such factors as monetary and social inflation, changes in claims administration processes, changes in reinsurance ceded and recoverability levels, and expected trends in claim costs and related ratios. Typically, such formulas take into account so-called link ratios that represent prior years' patterns of incurred or paid loss trends between succeeding years, or past experience relative to progressions of the number of claims reported over time and ultimate average costs per claim.

Overall, reserves pertaining to several hundred large individual commercial insurance accounts that exhibit sufficient statistical credibility, and at times may be subject to retrospective premium rating plans or the utilization of varying levels or types of self-insured retentions through captive insurers and similar risk management mechanisms are established on an account by account basis using case reserves and applicable formula-driven methods. Large account reserves are usually set and analyzed for groups of coverages such as workers' compensation, commercial auto and general liability that are typically underwritten jointly for many customers. For certain so-called long-tail categories of insurance such as retained or assumed excess liability or excess workers' compensation, officers and directors' liability, and commercial umbrella liability relative to which claim development patterns are particularly long, more volatile, and immature in their early stages of development, the Company judgmentally establishes the most current accident years' loss reserves on the basis of expected claim ratios. Such expected claim ratios typically reflect currently estimated claim ratios from prior accident years, adjusted for the effect of actual and anticipated rate changes, actual and anticipated changes in coverage, reinsurance, mix of business, and other anticipated changes in external factors such as trends in loss costs or the legal and claims environment. Expected claim ratios are generally used for the two to three most recent accident years depending on the individual class or category of business. As actual claims data emerges in succeeding interim and annual periods, the original accident year claim ratio assumptions are validated or otherwise adjusted sequentially through the application of statistical projection techniques such as the Bornhuetter/Ferguson method which utilizes data from the more mature experience of prior years to arrive at a likely indication of more recent years' loss trends and costs.

Title insurance and related escrow services loss and loss adjustment expense reserves are established as point estimates to cover the projected settlement costs of known as well as IBNR losses related to premium and escrow service revenues of each reporting period. Reserves for known claims are based on an assessment of the facts available to the Company during the settlement process. The point estimates covering all claim reserves take into account IBNR claims based on past experience and evaluations of such variables as changing trends in the types of policies issued, changes

40



in real estate markets and interest rate environments, and changing levels of loan refinancing, all of which can have a bearing on the emergence, number, and ultimate costs of claims.

RFIG Run-off mortgage guaranty insurance reserves for unpaid claims and claim adjustment expenses are recognized only upon an instance of default, defined as an insured mortgage loan for which two or more consecutive monthly payments have been missed. Loss reserves are based on statistical calculations that take into account the number of reported insured mortgage loan defaults as of each balance sheet date, as well as experience-based estimates of loan defaults that have occurred but have not as yet been reported. Further, the loss reserve estimating process takes into account a large number of variables including trends in claim severity, potential salvage recoveries, expected cure rates for reported loan delinquencies at various stages of default, the level of coverage rescissions and claims denials due to material misrepresentation in key underwriting information or non-compliance with prescribed underwriting guidelines, and management judgments relative to future employment levels, housing market activity, and mortgage loan interest costs, demand, and extensions.

The Company has the legal right to rescind mortgage insurance coverage unilaterally as expressly stated in its policy. Moreover, two federal courts that have considered that policy wording have each affirmed that right (See First Tennessee Bank N.A. v. Republic Mortg. Ins. Co., Case No. 2:10-cv-02513-JPM-cgc (W.D. Tenn., Feb. 25, 2011) and JPMorgan Chase Bank N.A. v. Republic Mortg. Ins. Co., Civil Action No. 10-06141 (SRC) (D. NJ, May 4, 2011), each decision citing supporting state law legal precedent). Republic Mortgage Insurance Company's mortgage insurance policy provides that the insured represents that all statements made and information provided to it in an application for coverage for a loan, without regard to who made the statements or provided the information, have been made and presented for and on behalf of the insured; and that such statements and information are neither false nor misleading in any material respect, nor omit any fact necessary to make such statements and information not false or misleading in any material respect. According to the policy, if any of those representations are materially false or misleading with respect to a loan, the Company has the right to cancel or rescind coverage for that loan retroactively to commencement of the coverage. Whenever the Company determines that an application contains a material misrepresentation, it either advises the insured in writing of its findings prior to rescinding coverage or exercises its unilateral right to rescind coverage for that loan, stating the reasons for that action in writing and returning the applicable premium. The rescission of coverage in instances of materially faulty representations or warranties provided in applications for insurance is a necessary and prevailing practice throughout the insurance industry. In the case of mortgage guaranty insurance, rescissions have occurred regularly over the years but have been generally immaterial. Since 2008, however, the Company has experienced a much greater incidence of rescissions due to increased levels of observed fraud and misrepresentations in insurance applications pertaining to business underwritten between 2004 and the first half of 2008 in particular. As a result, the Company has incorporated certain assumptions regarding the expected levels of coverage rescissions and claim denials in its reserving methodology since 2008. Such estimates, which are evaluated at each balance sheet date, take into account observed as well as historical trends in rescission and denial rates. The table below shows the estimated effects of coverage rescissions and claim denials on loss reserves and settled and incurred losses.
 
June 30,
 
June 30,
 
December 31,
 
December 31,
 
2018
 
2017
 
2017
 
2016
Estimated reduction in beginning reserve
$
19.0

 
$
29.6

 
$
29.6

 
$
47.5

Total incurred claims and settlement expenses
 
 
 
 
 
 
 
reduced (increased) by changes in
 
 
 
 
 
 
 
estimated rescissions:
 
 
 
 
 
 
 
Current year
2.2

 
3.2

 
6.2

 
8.3

Prior year
(3.3
)
 
(1.9
)
 
(3.7
)
 
(24.8
)
Sub-total
(1.1
)
 
1.3

 
2.5

 
(16.5
)
Estimated rescission reduction in paid claims
(2.7
)
 
(6.4
)
 
(13.1
)
 
(1.4
)
Estimated reduction in ending reserve
$
15.2

 
$
24.5

 
$
19.0

 
$
29.6


As noted above, the estimated reduction in ending loss reserves reflects, in large measure, a variety of judgments relative to the level of expected coverage rescissions and claim denials on loans that are in default as of each balance sheet date. The provision for insured events of the current year resulted from actual and anticipated rescissions and claim denials attributable to newly reported delinquencies in each respective year. The provision for insured events of prior years resulted from actual rescission and claim denial activity, reinstatement of previously rescinded or denied claims, or revisions in assumptions regarding expected rescission or claim denial rates on outstanding prior year delinquencies. The trends since 2010 reflect a continuing reduction in the level of actual and anticipated rescission and claim denial rates on total outstanding delinquencies. Claims not paid by virtue of rescission or denial represent the Company's estimated contractual risk, before consideration of the impacts of any reinsurance and deductibles or aggregate loss limits, on cases that are settled by the issuance of a rescission or denial notification. Variances between the estimated rescission and actual claim denial rate are reflected in the periods during which they occur.

Although the insured has no right under the policy to appeal a Company claim decision, the insured may, at any time, contest in writing the Company's findings or action with respect to a loan or a claim. In such cases, the Company considers any additional information supplied by the insured. This consideration may lead to further investigation, retraction or confirmation of the initial determination. If the Company concludes that it will reinstate coverage, it advises the insured in writing that it will do so immediately upon receipt of the premium previously returned. Reserves are not adjusted for potential reversals of rescissions or adverse rulings for loans under dispute since such reversals of claim rescissions and denials have historically been immaterial to the reserve estimation process.

41




Incurred Loss Experience

Management believes that the Company's overall reserving practices have been consistently applied over many years. For at least the past ten years, previously established aggregate reserves have produced reasonable estimates of the cumulative ultimate net costs of claims incurred. However, there are no guarantees that such outcomes will continue, and, accordingly, no representation is made that ultimate net claim and related costs will not develop in future years to be greater or lower than currently established reserve estimates. In management's opinion, however, such potential development is not likely to have a material effect on the Company's consolidated financial position, although it could affect materially its consolidated results of operations for any one annual or interim reporting period. See further discussion in the Company's 2017 Annual Report on Form 10-K under Item 1A - Risk Factors.

The following table shows an analysis of changes in aggregate reserves for the Company's losses, claims and settlement expenses for each of the periods shown.





























This space left intentionally blank




42



Summary of changes in aggregate reserves for claims and related costs:
 
Six Months Ended
 
June 30,
 
2018
 
2017
Gross reserves at beginning of period
$
9,237.6

 
$
9,206.0

Less: reinsurance losses recoverable
2,921.1

 
2,766.1

Net reserves at beginning of period:
 
 
 
General Insurance
5,471.5

 
5,249.9

Title Insurance
559.7

 
602.0

RFIG Run-off
271.7

 
574.0

Other
13.5

 
13.8

Sub-total
6,316.4

 
6,439.8

Incurred claims and claim adjustment expenses:
 
 
 
Provisions for insured events of the current year:
 
 
 
General Insurance
1,118.0

 
1,061.7

Title Insurance
45.5

 
44.3

RFIG Run-off (a)
33.9

 
67.6

Other
11.2

 
11.4

Sub-total
1,208.7

 
1,185.1

Change in provision for insured events of prior years:
 
 
 
General Insurance
16.0

 
28.8

Title Insurance
(15.5
)
 
(22.0
)
RFIG Run-off (a)
(15.8
)
 
(21.4
)
Other
(2.4
)
 
(1.8
)
Sub-total
(17.7
)
 
(16.5
)
Total incurred claims and claim adjustment expenses (a)
1,190.9

 
1,168.6

Payments:
 
 
 
Claims and claim adjustment expenses attributable to
 
 
 
   insured events of the current year:
 
 
 
General Insurance
300.2

 
276.4

Title Insurance
1.0

 
1.4

RFIG Run-off (b)
.5

 
.9

Other
6.3

 
6.4

Sub-total
308.1

 
285.3

Claims and claim adjustment expenses attributable to
 
 
 
   insured events of prior years:
 
 
 
General Insurance
688.5

 
677.3

Title Insurance
31.9

 
31.8

RFIG Run-off (b)
65.3

 
97.1

Other
3.4

 
3.2

Sub-total
789.2

 
809.6

Total payments (b)
1,097.4

 
1,094.9

Amount of reserves for unpaid claims and claim adjustment expenses
 
 
 
at the end of each period, net of reinsurance losses recoverable: (c)
 
 
 
General Insurance
5,616.8

 
5,386.7

Title Insurance
556.7

 
591.0

RFIG Run-off
223.9

 
522.0

Other
12.4

 
13.7

Sub-total
6,409.9

 
6,513.5

Reinsurance losses recoverable
2,982.6

 
2,873.0

Gross reserves at end of period
$
9,392.5

 
$
9,386.6

__________

(a)
In common with all other insurance coverages, RFIG Run-off mortgage guaranty settled and incurred claim and claim adjustment expenses include only those costs actually or expected to be paid by the Company. As previously noted, changes in mortgage guaranty aggregate case, IBNR, and loss adjustment expense reserves shown below

43



and entering into the determination of incurred claim costs, take into account, among a large number of variables, claim cost reductions for anticipated coverage rescissions and claims denials.

The RFIG Run-off mortgage guaranty provision for insured events of the current year was reduced by estimated coverage rescissions and claims denials of $2.2 and $3.2 for the year-to-date periods ended June 30, 2018 and 2017, respectively. The provision for insured events of prior years for the periods shown in the table was (increased) reduced by estimated coverage rescissions and claims denials of $(3.3) and $(1.9), respectively. Prior year development was also affected in varying degrees by differences between actual claim settlements relative to expected experience, by reinstatement of previously rescinded or denied claims, and by subsequent revisions of assumptions in regards to claim frequency, severity or levels of associated claim settlement costs which result from consideration of underlying trends and expectations.

(b)
Rescissions reduced the Company's paid losses by an estimated $2.7 and $6.4 for the quarters ended June 30, 2018 and 2017, respectively.

(c)
Net reserves for claims that have been incurred but are not yet reported ("IBNR") carried in each segment were as follows:
 
 
June 30,
 
June 30,
 
December 31,
 
 
2018
 
2017
 
2017
 
General Insurance
$
2,729.6

 
$
2,560.7

 
$
2,585.9

 
Title Insurance
478.7

 
519.0

 
479.3

 
RFIG Run-off
29.6

 
221.8

 
30.5

 
Other
4.1

 
5.3

 
4.7

 
Total
$
3,242.2

 
$
3,306.9

 
$
3,100.6



The percentage of net claims, benefits and related settlement expenses incurred as a percentage of premiums and related fee revenues of the Company's three major operating segments and for consolidated operations were as follows:
 
General
 
Title
 
RFIG Run-off
 
Consolidated
Years Ended December 31:
 
 
 
 
 
 
 
2015
74.1
%
 
4.9
%
 
88.0
%
 
47.5
%
2016
73.0

 
3.8

 
60.4

 
44.0

2017
71.8

 
.9

 
160.9

 
44.7

Six Months Ended June 30:
 
 
 
 
 
 
 
2017
72.8

 
2.1

 
67.4

 
44.2

2018
71.5

 
2.7

 
44.2

 
43.7

Quarters Ended June 30:
 
 
 
 
 
 
 
2017
74.5

 
2.0

 
80.0

 
45.1

2018
71.5
%
 
2.9
%
 
33.9
%
 
42.8
%

The percentage of net claims, benefits and related settlement expenses measured against premiums earned by major types of general insurance coverage were as follows:
 
General Insurance Claim Ratios by Type of Coverage
 
All
Coverages
 
Commercial
Automobile
(mostly
trucking)
 
Workers'
Compen-sation
 
Financial
Indemnity
 
Inland
Marine
and
Property
 
General
Liability
 
Other
Years Ended
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31:
 
 
 
 
 
 
 
 
 
 
 
 
 
2015
74.1
%
 
77.8
%
 
80.7
%
 
39.1
%
 
57.0
%
 
76.8
%
 
60.4
%
2016
73.0

 
79.4

 
76.1

 
45.5

 
60.9

 
77.5

 
62.2

2017
71.8

 
76.8

 
75.5

 
62.1

 
59.3

 
73.1

 
59.0

Six Months Ended
 
 
 
 
 
 
 
 
 
 
 
 
 
June 30:
 
 
 
 
 
 
 
 
 
 
 
 
 
2017
72.8

 
81.1

 
76.5

 
61.2

 
56.5

 
65.9

 
58.8

2018
71.5

 
77.3

 
73.0

 
69.9

 
59.1

 
71.0

 
58.4

Quarters Ended
 
 
 
 
 
 
 
 
 
 
 
 
 
June 30:
 
 
 
 
 
 
 
 
 
 
 
 
 
2017
74.5

 
79.8

 
77.4

 
60.2

 
60.5

 
75.4

 
59.8

2018
71.5
%

75.7
%
 
73.4
%
 
65.0
%
 
54.7
%
 
72.0
%
 
59.0
%


44




The general insurance year-over-year claim ratios trended down in this year's first half. Better performance was driven by Old Republic's large books of workers' compensation and commercial automobile (trucking) coverages in particular. The downturn in this largest of costs elements was aided by slightly lower estimates of current year claim provisions, and a lessened impact from unfavorable development of prior years' reserve estimates. The group experienced unfavorable developments of prior years' reserves of - and 1.0 percentage points for the second quarter and first six months of 2018, respectively, compared to 2.4 and 1.9 percentage points for the same respective periods of 2017.

Unfavorable A&E claim developments, although not material in any of the periods presented, are typically attributable to changes in A&E claim reserves resulting from periodic re-evaluations of such reserves as well as subsequent reclassifications of other coverages' reserves, most often workers' compensation, deemed assignable to A&E category of losses. Except for a small portion that emanates from ongoing primary insurance operations, a large majority of the A&E claim reserves posted by Old Republic stem mainly from its participations in assumed reinsurance treaties and insurance pools which were discontinued during the 1980's and have since been in run-off status. With respect to the primary portion of gross A&E reserves, Old Republic administers the related claims through its claims personnel as well as outside attorneys, and posted reserves reflect its best estimates of ultimate claim costs. Claims administration for the assumed portion of the Company's A&E exposures is handled by the claims departments of unrelated primary or ceding reinsurance companies. While the Company performs periodic reviews of certain claim files managed by third parties, the overall A&E reserves it establishes respond to the paid claim and case reserve activity reported to the Company as well as available industry statistical data such as so-called survival ratios. Such ratios represent the number of years' average paid losses for the three or five most recent calendar years that are encompassed by an insurer's A&E reserve level at any point in time. According to this simplistic appraisal of an insurer's A&E loss reserve level, Old Republic's average five year survival ratios stood at 4.6 years (gross) and 7.0 years (net of reinsurance) as of June 30, 2018 and 4.6 years (gross) and 6.3 years (net of reinsurance) as of December 31, 2017. Fluctuations in this ratio between years can be caused by the inconsistent pay out patterns associated with these types of claims. Incurred net losses for A&E claims have averaged 0.5% of general insurance group net incurred losses for the five years ended December 31, 2017.

Title insurance claim ratios have remained in the single digits for a number of years due to a continuation of favorable trends in claims frequency and severity. Year-over-year claim costs trended higher as favorable development of prior years' claim reserve estimates edged down. This favorable development of reserves established in prior years reduced the claim ratio by 1.2 and 1.4 percentage points in the second quarter and first six months of 2018, respectively, and 2.1 and 2.0 percentage points for the same periods of 2017.

The ratios of RFIG Run-off mortgage guaranty incurred claim costs to earned premiums were reduced by 37.9 and 32.5 percentage points in this year’s second quarter and first half, respectively. For the same respective periods of 2017, the reductions amounted to 27.0 and 31.1 percentage points. In each instance, the reductions reflect favorable developments of prior years’ claim reserves.

Certain mortgage guaranty average claims related trends are listed below:
 
Average Settled Claim Amount (a)
 
Reported Delinquency
Ratio at End of Period
 
Claims
Rescissions
and
Denials
 
Traditional
Primary
 
Bulk
 
Traditional
Primary
 
Bulk
 
Years Ended December 31:
 
 
 
 
 
 
 
 
 
2015
$
45,745

 
$
46,669

 
10.45
%
 
26.74
%
 
$
33.0

2016
45,478

 
48,158

 
10.53

 
25.78

 
1.4

2017
47,267

 
51,446

 
10.52

 
23.31

 
13.1

Six Months Ended June 30:
 
 
 
 
 
 
 
 
 
2017
46,978

 
49,528

 
9.57

 
23.29

 
6.4

2018
47,979

 
56,490

 
9.36
%
 
19.25
%
 
2.7

Quarters Ended June 30:
 
 
 
 
 
 
 
 
 
2017
45,461

 
46,884

 
 
 
 
 
3.4

2018
$
47,949

 
$
51,026

 
 
 
 
 
$
1.3

__________

(a)
Amounts are in whole dollars.

45



 
 
 
Traditional Primary Delinquency Ratios for Top Ten States (b):
 
TX
 
FL
 
GA
 
IL
 
CA
 
NC
 
PA
 
MD
 
NJ
 
VA
As of December 31:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2015
7.7
%
 
13.5
%
 
8.4
%
 
10.8
%
 
6.1
%
 
8.6
%
 
12.2
%
 
13.3
%
 
25.0
%
 
8.5
%
2016
9.1

 
11.8

 
8.7

 
10.7

 
6.1

 
8.3

 
12.7

 
12.8

 
23.5

 
8.6

2017
11.4

 
15.6

 
8.3

 
10.1

 
6.0

 
8.1

 
12.0

 
11.5

 
19.6

 
8.4

As of June 30:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2017
8.0

 
10.9

 
7.8

 
9.3

 
5.9

 
7.4

 
11.0

 
11.5

 
21.4

 
7.8

2018
10.2
%
 
12.0
%
 
7.4
%
 
8.4
%
 
5.5
%
 
8.1
%
 
11.0
%
 
10.2
%
 
15.9
%
 
7.3
%

 
 
 
Bulk Delinquency Ratios for Top Ten States (b):
 
TX
 
FL
 
GA
 
IL
 
CA
 
AZ
 
PA
 
OH
 
NJ
 
NY
As of December 31:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2015
19.0
%
 
38.9
%
 
17.6
%
 
25.7
%
 
26.0
%
 
22.4
%
 
26.9
%
 
16.3
%
 
59.0
%
 
52.1
%
2016
20.3

 
33.7

 
19.6

 
23.6

 
29.1

 
24.4

 
28.1

 
14.1

 
61.0

 
53.3

2017
20.3

 
34.2

 
17.8

 
21.5

 
26.4

 
24.6

 
25.3

 
15.0

 
50.3

 
44.2

As of June 30:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2017
18.6

 
29.3

 
17.6

 
18.7

 
28.0

 
25.7

 
23.2

 
12.7

 
58.2

 
47.5

2018
15.6
%
 
29.1
%
 
14.7
%
 
17.1
%
 
22.3
%
 
23.4
%
 
22.2
%
 
11.0
%
 
37.4
%
 
34.7
%

 
Total Delinquency Ratios for Top Ten States (includes "other" business) (b):
 
TX
 
FL
 
GA
 
IL
 
CA
 
NC
 
PA
 
MD
 
NJ
 
VA
As of December 31:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2015
8.3
%
 
15.9
%
 
8.8
%
 
11.5
%
 
9.3
%
 
9.0
%
 
13.0
%
 
14.2
%
 
27.4
%
 
8.9
%
2016
9.8

 
13.4

 
9.1

 
11.3

 
9.3

 
8.5

 
13.5

 
13.5

 
25.6

 
8.7

2017
12.1

 
16.9

 
8.8

 
10.6

 
9.2

 
8.4

 
12.8

 
12.0

 
21.1

 
8.6

As of June 30:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2017
8.7

 
12.4

 
8.3

 
9.8

 
9.3

 
7.8

 
11.7

 
12.1

 
23.4

 
8.1

2018
10.6
%
 
13.1
%
 
7.8
%
 
8.8
%
 
8.0
%
 
8.3
%
 
11.6
%
 
10.3
%
 
16.8
%
 
7.4
%
__________

(b)
As determined by risk in force as of June 30, 2018, these 10 states represent approximately 52.4%, 57.5%, and 52.3%, of traditional primary, bulk, and total risk in force, respectively.

The following table shows CCI claims related trends for the periods shown:
 
 
 
 
 
 
 
 
 
Reported
Delinquency
Ratio at End
of Period
 
Claim
Rescissions
and Denials
 
CCI Claim Costs
 
 
 
Paid
 
Incurred
 
 
 
Amount
 
Ratio (a)
 
Amount
 
Ratio (a)
 
 
Years Ended
 
 
 
 
 
 
 
 
 
 
 
December 31:
 
 
 
 
 
 
 
 
 
 
 
2015
$
35.6

 
148.8
 %
 
$
83.0

 
346.9
%
 
2.1
%
 
$
19.1

2016
11.7

 
74.0

 
50.0

 
315.9

 
2.0

 
10.1

2017
304.2

 
N/M

 
134.5

 
N/M

 
2.6

 
5.7

Six Months Ended
 
 
 
 
 
 
 
 
 
 
 
June 30:
 
 
 
 
 
 
 
 
 
 
 
2017
4.7

 
59.0

 
24.8

 
311.0

 
2.0

 
3.9

2018
(.4
)
 
(49.2
)
 
.3

 
44.6

 
1.9
%
 
.2

Quarters Ended
 
 
 
 
 
 
 
 
 
 
 
June 30:
 
 
 
 
 
 
 
 
 
 
 
2017
1.9

 
52.2

 
15.9

 
425.8

 
 
 
1.9

2018
$
.3

 
77.9
 %
 
$
.3

 
91.2
%
 
 
 
$

__________

(a)
Percent of net CCI earned premiums. CCI claims ratios include only those costs actually or expected to be paid by the Company and exclude claims not paid by virtue of coverage rescissions and claims denials as well as unsubstantiated claim submissions. Certain claim rescissions and denials may from time to time become the

46



subject of disagreements between the Company and certain individual insureds. Possible future reversals of such rescissions and denials, however, may not necessarily affect the adequacy of previously established claim reserve levels nor fully impact operating results. These effects could be fully or partially negated by the imposition of additional retrospective premiums and/or the limiting effects of maximum policy limits.

Reinsurance Programs

To maintain premium production within its capacity and limit maximum losses and risks for which it might become liable under its policies, Old Republic may cede a portion or all of its premiums and liabilities on certain classes of insurance, individual policies, or blocks of business to other insurers and reinsurers. Further discussion of the Company's reinsurance programs can be found in Part 1 of the Company's 2017 Annual Report on Form 10-K.
Expenses: Underwriting Acquisition and Other Expenses

The following table sets forth the expense ratios registered by each major business segment and in consolidation for the periods shown:
 
General
 
Title
 
RFIG Run-off
 
Consolidated
Years Ended December 31:
 
 
 
 
 
 
 
2015
23.5
%
 
88.3
%
 
10.0
%
 
48.5
%
2016
24.8

 
87.9

 
12.2

 
50.6

2017
25.5

 
90.0

 
16.6

 
52.0

Six Months Ended June 30:
 
 
 
 
 
 
 
2017
25.2

 
89.4

 
17.5

 
51.0

2018
25.9

 
90.6

 
21.9

 
51.8

Quarters Ended June 30:
 
 
 
 
 
 
 
2017
25.6

 
87.6

 
15.6

 
50.7

2018
25.5
%
 
88.2
%
 
23.9
%
 
51.5
%

Variations in the Company's consolidated expense ratios reflect a continually changing mix of coverages sold and attendant costs of producing business in the Company's three largest business segments. To a significant degree, expense ratios for both the general and title insurance segments are mostly reflective of variable costs, such as commissions or similar charges, that rise or decline along with corresponding changes in premium and fee income. Moreover, general operating expenses can contract or expand in differing proportions due to varying levels of operating efficiencies and expense management opportunities in the face of changing market conditions. As this year is progressing, the General Insurance expense ratio is staying aligned with revenue trends. The 2018 Title Insurance expense ratio was within range of expectations for this segment's current business environment.
Expenses: Total

The composite underwriting ratios of the above summarized net claims, benefits and underwriting expenses that reflect the sum total of all the factors enumerated above have been as follows:
 
General
 
Title
 
RFIG Run-off
 
Consolidated
Years Ended December 31:
 
 
 
 
 
 
 
2015
97.6
%
 
93.2
%
 
98.0
%
 
96.0
%
2016
97.8

 
91.7

 
72.6

 
94.6

2017
97.3

 
90.9

 
177.5

 
96.7

Six Months Ended June 30:
 
 
 
 
 
 
 
2017
98.0

 
91.5

 
84.9

 
95.2

2018
97.4

 
93.3

 
66.1

 
95.5

Quarters Ended June 30:
 
 
 
 
 
 
 
2017
100.1

 
89.6

 
95.6

 
95.8

2018
97.0
%
 
91.1
%
 
57.8
%
 
94.3
%


47



Expenses: Income Taxes

The effective consolidated income tax rates were 19.8% and 16.1% in the second quarter and first six months of 2018, compared to 30.5% and 31.0% in the second quarter and first six months of 2017. The rates for each period reflect primarily the varying proportions of pretax operating income (loss) derived from partially tax sheltered investment income (principally tax-exempt interest and dividend income), the combination of fully taxable investment income, investment gains or losses, underwriting and service income, and judgments about the recoverability of deferred tax assets, and changes in the federal corporate tax rate to 21.0% from 35.0% effective for 2018.


End of Management Analysis of Financial Position and Results of Operations

48





OTHER INFORMATION

Reference is here made to "Information About Segments of Business" appearing elsewhere herein.

Historical data pertaining to the operating results, liquidity, and other performance indicators applicable to an insurance enterprise such as Old Republic are not necessarily indicative of results to be achieved in succeeding years. In addition to the factors cited below, the long-term nature of the insurance business, seasonal and annual patterns in premium production and incidence of claims, changes in yields obtained on invested assets, changes in government policies and free markets affecting inflation rates and general economic conditions, and changes in legal precedents or the application of law affecting the settlement of disputed and other claims can have a bearing on period-to-period comparisons and future operating results.

Some of the oral or written statements made in the Company's reports, press releases, and conference calls following earnings releases, can constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Of necessity, any such forward-looking statements involve assumptions, uncertainties, and risks that may affect the Company's future performance. With regard to Old Republic's General Insurance segment, its results can be particularly affected by the level of market competition which is typically a function of available capital and expected returns on such capital among competitors, the levels of investment yields and inflation rates, and periodic changes in claim frequency and severity patterns caused by natural disasters, weather conditions, accidents, illnesses, work-related injuries, and unanticipated external events. Title Insurance and RFIG Run-off results can be affected by similar factors and by changes in national and regional housing demand and values, the availability and cost of mortgage loans, employment trends, and default rates on mortgage loans. Life and accident insurance earnings can be affected by the levels of employment and consumer spending, variations in mortality and health trends, and changes in policy lapsation rates. At the parent holding company level, operating earnings or losses are generally reflective of the amount of debt outstanding and its cost, interest income on temporary holdings of short-term investments, and period-to-period variations in the costs of administering the Company's widespread operations.

A more detailed listing and discussion of the risks and other factors which affect the Company's risk-taking insurance business are included in Part I, Item 1A - Risk Factors, of the Company's 2017 Annual Report with the Securities and Exchange Commission, which Item is specifically incorporated herein by reference.

Any forward-looking statements or commentaries speak only as of their dates. Old Republic undertakes no obligation to publicly update or revise any and all such comments, whether as a result of new information, future events or otherwise, and accordingly they may not be unduly relied upon.

49



OLD REPUBLIC INTERNATIONAL CORPORATION
 
 
Item 3 - Quantitative and Qualitative Disclosure About Market Risk

Market risk represents the potential for loss due to adverse changes in the fair value of financial instruments as a result of changes in interest rates, equity prices, foreign exchange rates and commodity prices. Old Republic's primary market risks consist of interest rate risk associated with investments in fixed maturities and equity price risk associated with investments in equity securities. The Company has no material foreign exchange or commodity risk.

Old Republic's market risk exposures at June 30, 2018, have not materially changed from those identified in the Company's 2017 Annual Report on Form 10-K.

Item 4 - Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company's principal executive officer and its principal accounting officer have evaluated the Company's disclosure controls and procedures as of the end of the period covered by this quarterly report. Based upon their evaluation, the principal executive officer and principal financial officer have concluded that the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) are effective for the above referenced evaluation period.

Changes in Internal Control

During the three month period ended June 30, 2018, there were no changes in internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

Management's Report on Internal Control Over Financial Reporting

The Company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

50




OLD REPUBLIC INTERNATIONAL CORPORATION
FORM 10-Q
PART II - OTHER INFORMATION
 

Item 1 - Legal Proceedings

The information contained in Note 7 "Commitments and Contingent Liabilities" of the Notes to Consolidated Financial Statements filed as Part 1 of this Quarterly Report on Form 10-Q is incorporated herein by reference.

Item 1A - Risk Factors

There have been no material changes with respect to the risk factors disclosed in the Company's 2017 Annual report on Form 10-K.

Item 6 - Exhibits

(a) Exhibits
31.1

 
Certification by Aldo C. Zucaro, Chief Executive Officer, pursuant to Rule 13a-14(a) and 15d-14(a), as
 
 
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
31.2

 
Certification by Karl W. Mueller, Chief Financial Officer, pursuant to Rule 13a-14(a) and 15d-14(a), as
 
 
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
32.1

 
Certification by Aldo C. Zucaro, Chief Executive Officer, pursuant to Section 1350, Chapter 63 of Title 18,
 
 
United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
32.2

 
Certification by Karl W. Mueller, Chief Financial Officer, pursuant to Section 1350, Chapter 63 of Title 18,
 
 
United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
101.INS

 
XBRL Instance Document
 
 
 
101.SCH

 
XBRL Taxonomy Extension Schema
 
 
 
101.CAL

 
XBRL Taxonomy Extension Calculation Linkbase
 
 
 
101.DEF

 
XBRL Taxonomy Extension Definition Linkbase
 
 
 
101.LAB

 
XBRL Taxonomy Extension Label Linkbase
 
 
 
101.PRE

 
XBRL Taxonomy Extension Presentation Linkbase

51






SIGNATURE

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

 
 
 
Old Republic International Corporation
 
 
 
(Registrant)
Date:
August 3, 2018
 
 
 
 
 
 
 
 
 
/s/ Karl W. Mueller
 
 
 
 
 
 
 
Karl W. Mueller
Senior Vice President,
Chief Financial Officer, and
Principal Accounting Officer


52


EXHIBIT INDEX


Exhibit
 
 
No.
 
Description
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
101.INS
 
XBRL Instance Document
 
 
 
101.SCH
 
XBRL Taxonomy Extension Schema
 
 
 
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase
 
 
 
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase
 
 
 
101.LAB
 
XBRL Taxonomy Extension Label Linkbase
 
 
 
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase


53