OLD REPUBLIC INTERNATIONAL CORP [ORI] Filings

10-Q 1 ori-20220930.htm 10-Q ori-20220930



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

FORM			10-Q


☒	Quarterly report pursuant to section 13 or 15(d) of the Security Exchange Act of 1934
	for the quarterly period ended:	September 30, 2022
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						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

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock / $1 par value

ORI

New York Stock Exchange

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: ☒ No: ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes: ☒ No: ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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	☒	Accelerated filer	☐

Non-accelerated filer	☐	Smaller reporting company	☐

		Emerging growth company	☐

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. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).Yes: ☐ No: ☒

The number of shares of the Registrant's Common Stock outstanding at September 30, 2022 was 304,303,660.

There are 44 pages in this report


OLD REPUBLIC INTERNATIONAL CORPORATION

Report on Form 10-Q / September 30, 2022

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 PREFERRED STOCK AND COMMON
	SHAREHOLDERS' EQUITY	6

	CONSOLIDATED STATEMENTS OF CASH FLOWS	7

	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	8 - 17

	MANAGEMENT ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS	18 - 40

	QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK	41

	CONTROLS AND PROCEDURES	41

PART II	OTHER INFORMATION:

	ITEM 1 - LEGAL PROCEEDINGS	42

	ITEM 1A - RISK FACTORS	42

	ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	42

	ITEM 6 - EXHIBITS	42

SIGNATURE		43

EXHIBIT INDEX		44


Old Republic International Corporation and Subsidiaries
Consolidated Balance Sheets
($ in Millions, Except Share Data)
	(Unaudited)
	September 30,		December 31,
	2022		2021
Assets
Investments:
Available for sale:
Fixed income securities (at fair value) (amortized cost: $11,606.7 and $10,438.6)	$	10,841.8	$	10,675.7
Short-term investments (at fair value which approximates cost)	1,371.5		565.7
Total	12,213.3		11,241.4
Equity securities (at fair value) (cost: $2,151.0 and $3,766.5)	3,045.4		5,302.8
Other investments	30.3		32.0
Total Investments	15,289.1		16,576.3
Other Assets:
Cash	102.4		158.1
Accrued investment income	100.2		84.4
Accounts and notes receivable	2,096.9		1,768.7
Federal income tax recoverable: Current	—		11.8
Deferred	127.4		—

Reinsurance balances and funds held	330.0		258.1
Reinsurance recoverable: Paid losses	136.8		118.2
Policy and loss reserves	5,542.8		4,825.1
Deferred policy acquisition costs	386.7		350.4
Sundry assets	834.2		830.3
Total Other Assets	9,657.9		8,405.5
Total Assets	$	24,947.0	$	24,981.8
Liabilities, Preferred Stock, and Common Shareholders' Equity
Liabilities:
Loss and loss adjustment expense reserves	$	12,174.7	$	11,425.5
Unearned premiums	2,993.1		2,559.4
Other policyholders' benefits and funds	189.5		192.6
Total policy liabilities and accruals	15,357.3		14,177.5
Commissions, expenses, fees, and taxes	557.7		573.5
Reinsurance balances and funds	1,154.3		866.0
Federal income tax payable: Current	2.0		—
Deferred	—		249.5
Debt	1,596.6		1,588.5
Sundry liabilities	600.7		633.3
Total Liabilities	19,268.9		18,088.6
Preferred Stock (1)	—		—
Common Shareholders' Equity:
Common stock (1)	304.3		307.5
Additional paid-in capital	1,299.7		1,376.1
Retained earnings	4,874.9		5,214.0
Accumulated other comprehensive income (loss)	(728.0)		78.0
Unallocated ESSOP shares (at cost)	(72.7)		(82.5)
Total Common Shareholders' Equity	5,678.1		6,893.2
Total Liabilities, Preferred Stock and Common Shareholders' Equity	$	24,947.0	$	24,981.8

________

(1) At September 30, 2022 and December 31, 2021, 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 304,303,660 and 307,565,632 were issued as of September 30, 2022 and December 31, 2021, respectively. At September 30, 2022 and December 31, 2021, 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.


Old Republic International Corporation and Subsidiaries
Consolidated Statements of Income (Unaudited)
($ in Millions, Except Share Data)
	Quarters Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Revenues:
Net premiums earned	$	1,862.3	$	1,941.7	$	5,578.5	$	5,542.5
Title, escrow, and other fees	80.9		113.6		266.1		339.1
Total premiums and fees	1,943.3		2,055.4		5,844.6		5,881.6
Net investment income	115.1		111.6		329.2		323.6
Other income	39.7		37.8		113.7		112.0
Total operating revenues	2,098.2		2,204.9		6,287.7		6,317.3
Net investment gains (losses):
Realized from actual transactions and impairments	(26.2)		6.6		92.3		15.6
Unrealized from changes in fair value of
equity securities	(350.8)		(199.3)		(641.8)		288.1
Total realized and unrealized investment
gains (losses)	(377.1)		(192.6)		(549.5)		303.7
Total revenues	1,721.0		2,012.2		5,738.1		6,621.0

Expenses:
Loss and loss adjustment expenses	624.3		615.4		1,864.4		1,829.3
Dividends to policyholders	4.2		2.9		10.8		17.5
Underwriting, acquisition, and other expenses	1,195.8		1,270.8		3,604.5		3,601.8
Interest and other charges	16.3		16.8		49.9		39.7
Total expenses	1,840.7		1,906.2		5,529.7		5,488.4
Income (loss) before income taxes (credits)	(119.6)		106.0		208.3		1,132.6

Income Taxes (Credits):
Current	79.5		63.0		202.8		160.4
Deferred	(107.3)		(45.7)		(168.7)		64.8
Total	(27.8)		17.2		34.0		225.2

Net Income (Loss)	$	(91.7)	$	88.7	$	174.3	$	907.3

Net Income (Loss) Per Share:
Basic	$	(.31)	$	.29	$	.57	$	3.01
Diluted	$	(.31)	$	.29	$	.57	$	3.00

Average shares outstanding: Basic	303,652,802		301,577,493		303,797,001		301,247,397
Diluted	303,652,802		303,539,358		305,381,348		302,908,488

See accompanying Notes to Consolidated Financial Statements.


Old Republic International Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income (Unaudited)
($ in Millions)
	Quarters Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Net Income (Loss) As Reported	$	(91.7)	$	88.7	$	174.3	$	907.3

Other comprehensive income (loss):
Unrealized gains (losses) on securities not included
in the statements of income:
Unrealized gains (losses) before reclassifications,
not included in the statements of income	(387.5)		(67.9)		(1,277.0)		(248.9)
Amounts reclassified as realized investment (gains)
losses in the statements of income	207.2		(.8)		267.6		(1.9)
Pretax unrealized gains (losses) on securities not
included in the statements of income	(180.3)		(68.8)		(1,009.3)		(250.9)
Deferred income taxes (credits)	(37.9)		(14.5)		(212.9)		(52.9)
Net unrealized gains (losses) on securities not included
in the statements of income, net of tax	(142.3)		(54.3)		(796.3)		(197.9)
Defined benefit pension plans:
Net pension adjustment before reclassifications	—		—		—		—
Amounts reclassified as underwriting, acquisition,
and other expenses in the statements of income	.7		1.8		2.3		5.5
Pretax net adjustment related to defined benefit
pension plans	.7		1.8		2.3		5.5
Deferred income taxes (credits)	.1		.3		.4		1.1
Net adjustment related to defined benefit pension
plans, net of tax	.6		1.4		1.8		4.3
Foreign currency translation adjustment	(10.2)		(4.3)		(11.5)		2.7
Total other comprehensive income (loss)	(151.9)		(57.2)		(806.1)		(190.8)
Comprehensive Income (Loss)	$	(243.7)	$	31.5	$	(631.7)	$	716.4

See accompanying Notes to Consolidated Financial Statements.


Old Republic International Corporation and Subsidiaries
Consolidated Statements of Preferred Stock
and Common Shareholders' Equity (Unaudited)
($ in Millions)
	Quarters Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Preferred Stock:
Balance, beginning and end of period	$	—	$	—	$	—	$	—

Common Stock:
Balance, beginning of period	$	308.9	$	305.7	$	307.5	$	304.1
Dividend reinvestment plan	—		—		—		—
Stock based compensation	.1		1.2		1.5		2.7
Treasury stock restored to unissued status	(4.8)		—		(4.8)		—
Balance, end of period	$	304.3	$	307.0	$	304.3	$	307.0

Additional Paid-in Capital:
Balance, beginning of period	$	1,395.9	$	1,337.6	$	1,376.1	$	1,306.9
Dividend reinvestment plan	1.3		.2		1.8		1.7


Stock based compensation	5.6		21.6		22.0		48.7
ESSOP shares released	1.8		4.1		4.8		6.3
Treasury stock restored to unissued status	(99.9)		—		(99.9)		—
Other - net	(5.0)		—		(5.1)		—
Balance, end of period	$	1,299.7	$	1,363.8	$	1,299.7	$	1,363.8

Retained Earnings:
Balance, beginning of period	$	5,341.0	$	5,082.1	$	5,214.0	$	4,394.8


Net income (loss)	(91.7)		88.7		174.3		907.3
Dividends on common shares (1)	(374.3)		(517.5)		(513.4)		(648.8)
Balance, end of period	$	4,874.9	$	4,653.3	$	4,874.9	$	4,653.3

Accumulated Other Comprehensive Income (Loss):
Balance, beginning of period	$	(576.0)	$	150.4	$	78.0	$	284.0
Net unrealized gains (losses) on securities not included in the
statements of income, net of tax	(142.3)		(54.3)		(796.3)		(197.9)
Net adjustment related to defined benefit pension plans,
net of tax	.6		1.4		1.8		4.3
Foreign currency translation adjustment	(10.2)		(4.3)		(11.5)		2.7

Balance, end of period	$	(728.0)	$	93.2	$	(728.0)	$	93.2

Unallocated ESSOP Shares:
Balance, beginning of period	$	(76.6)	$	(97.3)	$	(82.5)	$	(103.2)
ESSOP shares released	3.8		9.3		9.8		15.2

Balance, end of period	$	(72.7)	$	(87.9)	$	(72.7)	$	(87.9)

Treasury Stock:
Balance, beginning of period	$	—	$	—	$	—	$	—
Acquired during the period	(104.8)		—		(104.8)		—
Restored to unissued status	104.8		—		104.8		—
Balance, end of period	$	—	$	—	$	—	$	—

________

(1) Cash dividends per common share of $1.23 and $1.72 were declared for the quarters ended September 30, 2022 and 2021, respectively, and $1.69 and $2.16 were declared for the comparative nine month periods.

See accompanying Notes to Consolidated Financial Statements.


Old Republic International Corporation and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
($ in Millions)
	Nine Months Ended
	September 30,
	2022		2021
Cash flows from operating activities:
Net income (loss)	$	174.3	$	907.3
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Deferred policy acquisition costs	(36.2)		(27.2)
Premiums and other receivables	(328.1)		(267.5)
Loss and loss adjustment expense reserves	265.0		257.5
Unearned premiums and other policyholders' liabilities	197.0		112.0
Income taxes	(150.6)		63.0

Reinsurance balances and funds	197.6		179.8
Realized investment (gains) losses from actual transactions	(92.3)		(15.6)
Unrealized investment (gains) losses from changes in fair value
of equity securities	641.8		(288.1)
Accounts payable, accrued expenses and other	34.7		49.4
Total	903.4		970.6

Cash flows from investing activities:
Fixed income securities:
Maturities and early calls	1,128.6		1,121.4
Sales	810.6		281.0
Sales of:
Equity securities	2,011.5		522.6
Other investments	7.4		6.5

Purchases of:
Fixed income securities	(3,417.2)		(1,668.4)
Equity securities	(37.7)		(993.5)
Other investments	(39.4)		(42.0)
Net decrease (increase) in short-term investments	(806.3)		(352.2)
Other - net	(12.3)		—
Total	(354.7)		(1,124.5)

Cash flows from financing activities:
Issuance of debentures and notes	—		642.5
Issuance of common shares	19.0		50.3
Redemption of debentures and notes	—		(21.7)

Dividends on common shares (including a special dividend of $308.4 paid in
September 2022 and $304.0 paid in January 2021)	(512.5)		(501.5)
Treasury stock acquired	(104.8)		—
Other - net	(5.9)		(.8)
Total	(604.3)		168.7

Increase (decrease) in cash	(55.7)		14.7
Cash, beginning of period	158.1		118.7
Cash, end of period	$	102.4	$	133.4

Supplemental cash flow information:
Cash paid (received) during the period for: Interest	$	53.3	$	40.9
Income taxes	$	185.2	$	162.4

See accompanying Notes to Consolidated Financial Statements.


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

Note 1 - Summary of Significant Accounting Policies

Accounting Principles - 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 2021 Annual Report on Form 10-K incorporated herein by reference. 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. Pertinent accounting and disclosure pronouncements issued from time to time by the FASB are adopted by the Company as they become effective.

Statement Presentation - 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. Reclassifications are made in prior periods' financial statements whenever appropriate to conform to the most current presentation.

Investments - The Company classifies its fixed income securities, also referred to as fixed maturity securities, as those it either (1) has the intent and ability to hold until maturity, (2) has available for sale or (3) has the intention of trading. The Company's entire fixed income portfolio is classified as available for sale.

Fixed income securities classified as available for sale are reported at fair value with changes in such values, net of deferred income taxes, reflected directly in shareholders' equity. Equity securities are reported at fair value with changes in such values reflected as unrealized investment gains (losses) in the consolidated statements of income. Fair values are based on quoted market prices or estimates using values obtained from recognized independent pricing services.

The status and fair value changes of each of the fixed income investments are reviewed at least once per quarter to assess whether a decline in fair value of an investment below its cost basis is the result of a credit loss. Credit losses are recorded through an allowance with the corresponding charge to realized investment gains (losses). If the Company intends to sell or is more likely than not required to sell a security, the asset is written down to fair value directly through realized investment gains (losses).

Investment income is reported net of allocated expenses and includes appropriate adjustments for amortization of premium and accretion of discount on fixed income securities acquired at other than par value. Dividends on equity securities are credited to income on the ex-dividend date. At September 30, 2022, the Company and its subsidiaries did not have significant amounts of non-income producing securities.

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 income securities, and cost in regard to equity securities; such bases apply to the specific securities sold.

Revenue Recognition - 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 loss and loss adjustment expenses.

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 20% of 2022 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 title premium and fee revenues are produced by independent title agents. 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 loss reserve provisions.

Loss and Loss Adjustment Expenses - The establishment of loss 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 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 possibility of higher or lower than anticipated loss 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 loss 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 losses in future years, may offset, in whole or in part, favorable or unfavorable loss developments for certain coverages such as workers' compensation, portions of which are written under loss sensitive programs that provide for such adjustments. Management 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 losses incurred. However, no representation is made nor is any guaranty given that ultimate net losses and related costs will not develop in future years to be significantly greater or lower than currently established reserve estimates.

The Company's accounting policy regarding the establishment of loss reserve estimates is described in Note 1 to the consolidated financial statements included in Old Republic's 2021 Annual Report on Form 10-K. Certain loss related financial statement captions and disclosures reflect minor wording changes when compared to the Company's 2021 Annual Report on Form 10-K.

Employee Benefit Plans - The Company has a closed pension plan (the "Plan") for certain employees under which benefits were frozen as of December 31, 2013. The underfunded status of the Plan is recognized as a net pension liability with offsetting entries reflected as a component of shareholders' equity in accumulated other comprehensive income, net of deferred taxes.

The Company also provides long-term incentive awards to certain employees. In March 2022, the Compensation Committee of the Company's Board of Directors approved the grant of stock-based awards to certain employees under the 2022 Incentive Compensation Plan which received shareholder approval in May 2022.

Note 2 - Investments

The amortized cost and estimated fair values by type and contractual maturity of fixed income 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 Income Securities by Type:
September 30, 2022:
U.S. & Canadian Governments	$	2,131.8	$	—	$	122.0	$	2,009.7
Tax-exempt	897.7		—		26.2		871.5
Corporate	8,577.1		1.7		618.3		7,960.5
	$	11,606.7	$	1.7	$	766.7	$	10,841.8

December 31, 2021:
U.S. & Canadian Governments	$	2,121.6	$	44.8	$	7.9	$	2,158.5
Tax-exempt	944.9		44.3		—		989.2
Corporate	7,372.1		220.0		64.2		7,527.9
	$	10,438.6	$	309.2	$	72.2	$	10,675.7


	Amortized Cost		Estimated Fair Value
Fixed Income Securities Stratified by Contractual Maturity at September 30, 2022:
Due in one year or less	$	1,324.2	$	1,311.0
Due after one year through five years	5,605.1		5,331.7
Due after five years through ten years	4,566.1		4,093.5
Due after ten years	111.2		105.3
	$	11,606.7	$	10,841.8

The following table reflects the Company's gross unrealized losses and fair value, aggregated by category and length of time that individual securities have been in an unrealized loss position. Fair value and issuer's cost comparisons follow:


	Less than 12 Months				12 Months or Greater				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
September 30, 2022:

Fixed Income Securities:
U.S. & Canadian Governments	$	1,601.5	$	76.4	$	408.2	$	45.6	$	2,009.7	$	122.0
Tax-exempt	863.8		26.2		—		—		863.8		26.2
Corporate	6,842.1		513.7		799.9		104.6		7,642.0		618.3
	$	9,307.4	$	616.4	$	1,208.1	$	150.2	$	10,515.6	$	766.7

Number of securities in
unrealized loss position			1,813				181				1,994

December 31, 2021:

Fixed Income Securities:
U.S. & Canadian Governments	$	761.8	$	6.2	$	43.2	$	1.6	$	805.0	$	7.9

Corporate	2,032.8		55.5		174.1		8.7		2,207.0		64.2
	$	2,794.7	$	61.8	$	217.3	$	10.3	$	3,012.0	$	72.2

Number of securities in
unrealized loss position			419				32				451

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 credit losses, the Company considers whether it intends to sell or is more likely than not required to sell securities, principally in consideration of its asset and liability maturity matching objectives. Net realized investment gains (losses) in the third quarter and first nine months of 2022 included $120.9 and $123.5, respectively, of losses on fixed income securities for which management intends to dispose of, principally due to tax planning considerations. No such losses were recognized during the same periods of 2021. The Company recorded no allowance for credit losses as of September 30, 2022, and December 31, 2021.

The following table shows cost and fair value information for equity securities:


	Equity Securities
	Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
September 30, 2022	$	2,151.0	$	953.7	$	59.3	$	3,045.4
December 31, 2021	$	3,766.5	$	1,620.8	$	84.5	$	5,302.8

During the third quarter and first nine months of 2022 and 2021, the Company recognized pretax unrealized investment gains (losses) of $(350.8) and $(641.8), respectively for 2022, and $(199.3) and $288.1, respectively for 2021, emanating from changes in the fair value of equity securities in the consolidated statements of income. Changes in the fair value of equity securities still held at September 30, 2022 and 2021 were $(215.8) and $(378.6) for the third quarter and first nine months of 2022, respectively, and $(178.3) and $245.9 for the third quarter and first nine months of 2021, respectively.

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: Level 1 inputs are based on quoted market prices in active markets; Level 2 observable inputs are based on corroboration with available market data; and Level 3 unobservable inputs are based on uncorroborated market data or a reporting entity's own assumptions. 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 fixed income 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) comparisons with other sources including the fair value estimates based on current market quotations, and with independent fair value estimates provided by the independent investment custodian. The independent pricing source obtains market quotations and actual transaction prices for securities that have quoted prices in active markets and uses their 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, mutual funds, and 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 Level 3 assets as of September 30, 2022 and December 31, 2021.

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 September 30, 2022:	Level 1		Level 2		Level 3		Total
Available for sale:
Fixed income securities:
U.S. & Canadian Governments	$	1,430.1	$	579.6	$	—	$	2,009.7
Tax-exempt	—		871.5		—		871.5
Corporate	—		7,940.0		20.5		7,960.5
Short-term investments	1,371.5		—		—		1,371.5
Equity securities	$	3,043.6	$	—	$	1.7	$	3,045.4

As of December 31, 2021:
Available for sale:
Fixed income securities:
U.S. & Canadian Governments	$	1,453.8	$	704.6	$	—	$	2,158.5
Tax-exempt	—		989.2		—		989.2
Corporate	—		7,517.4		10.5		7,527.9
Short-term investments	565.7		—		—		565.7
Equity securities	$	5,300.8	$	—	$	1.9	$	5,302.8

There were no transfers between Levels 1, 2 or 3 during the quarter ended September 30, 2022.

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				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Investment income:
Fixed income securities	$	80.0	$	67.3	$	219.6	$	209.7
Equity securities	30.2		45.0		107.1		116.6
Short-term investments	6.0		—		7.3		.1
Other investments	1.2		.8		2.1		1.6
Gross investment income	117.6		113.2		336.2		328.1
Investment expenses	2.5		1.5		6.9		4.5
Net investment income	$	115.1	$	111.6	$	329.2	$	323.6

Net investment gains (losses):
Realized from actual transactions:
Fixed income securities:
Gains	$	.6	$	1.0	$	.7	$	2.6
Losses	(86.9)		(.1)		(146.2)		(.7)
Net	(86.3)		.8		(145.4)		1.9
Equity securities:
Gains	219.0		31.2		439.2		68.0
Losses	(38.1)		(25.5)		(79.2)		(54.3)
Net	180.9		5.7		359.9		13.6
Other investments, net	—		—		1.3		—
Total realized from actual transactions	94.7		6.6		215.8		15.6
From impairments	(120.9)