OLD REPUBLIC INTERNATIONAL CORP [ORI] Filings

10-Q 1 ori-20210930.htm 10-Q ori-20210930



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, 2021
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, 2021 was 307,008,734.

There are 47 pages in this report


OLD REPUBLIC INTERNATIONAL CORPORATION

Report on Form 10-Q / September 30, 2021

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 - 18

	MANAGEMENT ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS	19 - 42

	QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK	43

	CONTROLS AND PROCEDURES	43

PART II	OTHER INFORMATION:

	ITEM 1 - LEGAL PROCEEDINGS	44

	ITEM 1A - RISK FACTORS	44

	ITEM 6 - EXHIBITS	45

SIGNATURE		46

EXHIBIT INDEX		47


Old Republic International Corporation and Subsidiaries
Consolidated Balance Sheets
($ in Millions, Except Share Data)
	(Unaudited)
	September 30,		December 31,
	2021		2020
Assets
Investments:
Available for sale:
Fixed maturity securities (at fair value) (amortized cost: $10,136.9 and $9,897.6)	$	10,486.3	$	10,496.8
Short-term investments (at fair value which approximates cost)	1,102.1		749.6
Total	11,588.4		11,246.4
Equity securities (at fair value) (cost: $3,754.7 and $3,269.7)	4,828.0		4,054.8
Other investments	30.6		28.8
Total Investments	16,447.1		15,330.1
Other Assets:
Cash	133.4		118.7
Accrued investment income	86.1		86.4
Accounts and notes receivable	1,861.4		1,593.9



Reinsurance balances and funds held	234.8		205.0
Reinsurance recoverable: Paid losses	75.1		67.6
Policy and claim reserves	4,979.6		4,295.1
Deferred policy acquisition costs	355.3		328.0
Sundry assets	816.7		790.0
Total Other Assets	8,542.8		7,485.0
Total Assets	$	24,989.9	$	22,815.2
Liabilities, Preferred Stock, and Common Shareholders' Equity
Liabilities:
Losses, claims, and settlement expenses	$	11,433.7	$	10,671.0
Unearned premiums	2,682.3		2,397.1
Other policyholders' benefits and funds	202.4		195.9
Total policy liabilities and accruals	14,318.5		13,264.2
Commissions, expenses, fees, and taxes	657.0		663.5
Reinsurance balances and funds	942.4		725.4
Federal income tax payable: Current	1.2		4.2
Deferred	151.5		137.3
Debt	1,588.2		966.4
Sundry liabilities	1,001.4		867.3
Commitments and contingent liabilities
Total Liabilities	18,660.5		16,628.5
Preferred Stock (1)	—		—
Common Shareholders' Equity:
Common stock (1)	307.0		304.1
Additional paid-in capital	1,363.8		1,306.9
Retained earnings	4,653.3		4,394.8
Accumulated other comprehensive income (loss)	93.2		284.0
Unallocated ESSOP shares (at cost)	(87.9)		(103.2)
Total Common Shareholders' Equity	6,329.4		6,186.6
Total Liabilities, Preferred Stock and Common Shareholders' Equity	$	24,989.9	$	22,815.2

________

(1) At September 30, 2021 and December 31, 2020, 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 307,008,734 and 304,122,180 were issued as of September 30, 2021 and December 31, 2020, respectively. At September 30, 2021 and December 31, 2020, 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,
	2021		2020		2021		2020
Revenues:
Net premiums earned	$	1,941.7	$	1,622.2	$	5,542.5	$	4,553.4
Title, escrow, and other fees	113.6		110.5		339.1		278.2
Total premiums and fees	2,055.4		1,732.8		5,881.6		4,831.6
Net investment income	111.6		106.4		323.6		329.3
Other income	37.8		31.7		112.0		98.5
Total operating revenues	2,204.9		1,871.0		6,317.3		5,259.5
Investment gains (losses):
Realized from actual transactions	6.6		1.4		15.6		12.7

Unrealized from changes in fair value of
equity securities	(199.3)		79.2		288.1		(529.4)
Total realized and unrealized investment
gains (losses)	(192.6)		80.7		303.7		(516.7)
Total revenues	2,012.2		1,951.7		6,621.0		4,742.8

Benefits, Claims and Expenses:
Benefits, claims and settlement expenses	615.4		633.2		1,829.3		1,870.8
Dividends to policyholders	2.9		4.9		17.5		14.0
Underwriting, acquisition, and other expenses	1,270.8		997.1		3,601.8		2,789.8
Interest and other charges	16.8		9.5		39.7		31.8
Total expenses	1,906.2		1,644.7		5,488.4		4,706.6
Income (loss) before income taxes (credits)	106.0		306.9		1,132.6		36.1

Income Taxes (Credits):
Current	63.0		45.0		160.4		110.9
Deferred	(45.7)		15.9		64.8		(113.7)
Total	17.2		60.9		225.2		(2.7)

Net Income (Loss)	$	88.7	$	246.0	$	907.3	$	38.9

Net Income (Loss) Per Share:
Basic	$	.29	$	.83	$	3.01	$	.13
Diluted	$	.29	$	.83	$	3.00	$	.13

Average shares outstanding: Basic	301,577,493		297,729,418		301,247,397		298,526,123
Diluted	303,539,358		297,990,822		302,908,488		299,015,526

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,
	2021		2020		2021		2020
Net Income (Loss) As Reported	$	88.7	$	246.0	$	907.3	$	38.9

Other comprehensive income (loss):
Unrealized gains (losses) on securities:
Unrealized gains (losses) before reclassifications,
not included in the statements of income	(67.9)		32.3		(248.9)		321.5
Amounts reclassified as realized investment (gains)
losses in the statements of income	(.8)		(.7)		(1.9)		7.8
Pretax unrealized gains (losses) on securities	(68.8)		31.6		(250.9)		329.3
Deferred income taxes (credits)	(14.5)		6.6		(52.9)		69.5
Net unrealized gains (losses) on securities, net of tax	(54.3)		24.9		(197.9)		259.8
Defined benefit pension plans:
Net pension adjustment before reclassifications	—		—		—		—
Amounts reclassified as underwriting, acquisition,
and other expenses in the statements of income	1.8		.9		5.5		2.7
Pretax net adjustment related to defined benefit
pension plans	1.8		.9		5.5		2.7
Deferred income taxes (credits)	.3		.1		1.1		.5
Net adjustment related to defined benefit pension
plans, net of tax	1.4		.7		4.3		2.1
Foreign currency translation adjustment	(4.3)		2.8		2.7		(3.6)
Total other comprehensive income (loss)	(57.2)		28.5		(190.8)		258.3
Comprehensive Income (Loss)	$	31.5	$	274.5	$	716.4	$	297.3

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,
	2021		2020		2021		2020
Preferred Stock:
Balance, beginning and end of period	$	—	$	—	$	—	$	—

Common Stock:
Balance, beginning of period	$	305.7	$	304.0	$	304.1	$	303.6
Dividend reinvestment plan	—		—		—		—
Net issuance of shares under stock based compensation plans	1.2		—		2.7		.3



Balance, end of period	$	307.0	$	304.0	$	307.0	$	304.0

Additional Paid-in Capital:
Balance, beginning of period	$	1,337.6	$	1,305.1	$	1,306.9	$	1,297.5
Dividend reinvestment plan	.2		.2		1.7		.7
Net issuance of shares under stock based compensation plans	21.2		.1		45.6		4.8


Stock based compensation	.4		.4		3.1		2.0
ESSOP shares released	4.1		—		6.3		.7
Other - net	—		(.2)		—		(.2)
Balance, end of period	$	1,363.8	$	1,305.6	$	1,363.8	$	1,305.6

Retained Earnings:
Balance, beginning of period	$	5,082.1	$	4,051.2	$	4,394.8	$	4,386.0
Adoption of new accounting principle (1)	—		—		—		(2.3)
Balance, beginning of period, as adjusted	5,082.1		4,051.2		4,394.8		4,383.6
Net income (loss)	88.7		246.0		907.3		38.9
Dividends on common shares ($1.72, $.21, $2.16 and $.63 per
common share)	(517.5)		(62.4)		(648.8)		(187.7)
Balance, end of period	$	4,653.3	$	4,234.9	$	4,653.3	$	4,234.9

Accumulated Other Comprehensive Income (Loss):
Balance, beginning of period	$	150.4	$	307.5	$	284.0	$	77.7


Net unrealized gains (losses) on securities, net of tax	(54.3)		24.9		(197.9)		259.8
Net adjustment related to defined benefit pension plans,
net of tax	1.4		.7		4.3		2.1
Foreign currency translation adjustment	(4.3)		2.8		2.7		(3.6)
Balance, end of period	$	93.2	$	336.1	$	93.2	$	336.1

Unallocated ESSOP Shares:
Balance, beginning of period	$	(97.3)	$	(109.0)	$	(103.2)	$	(64.8)
ESSOP shares released	9.3		2.8		15.2		8.6
Purchase of unallocated ESSOP shares	—		—		—		(50.0)
Balance, end of period	$	(87.9)	$	(106.1)	$	(87.9)	$	(106.1)

_______

(1)Reflects the Company's adoption of a new accounting principle relating to credit losses effective January 1, 2020. Refer to additional discussion in Note 1 to the Consolidated Financial Statements.

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,
	2021		2020
Cash flows from operating activities:
Net income (loss)	$	907.3	$	38.9
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Deferred policy acquisition costs	(27.2)		(3.3)
Premiums and other receivables	(267.5)		(263.5)
Unpaid claims and related items	257.5		328.8
Unearned premiums and other policyholders' liabilities	112.0		46.0
Income taxes	63.0		(99.7)

Reinsurance balances	179.8		193.1
Realized investment (gains) losses from actual transactions	(15.6)		(12.7)
Unrealized investment (gains) losses from changes in fair value
of equity securities	(288.1)		529.4
Accounts payable, accrued expenses and other	49.4		51.9
Total	970.6		808.9

Cash flows from investing activities:
Fixed maturity securities:
Maturities and early calls	1,121.4		935.3
Sales	281.0		343.6



Sales of:
Equity securities	522.6		159.1
Other - net	6.5		7.1

Purchases of:
Fixed maturity securities	(1,668.4)		(1,380.2)
Equity securities	(993.5)		(321.0)
Other - net	(42.0)		(31.7)

Net decrease (increase) in short-term investments	(352.2)		(263.6)
Other - net	—		(.4)
Total	(1,124.5)		(551.9)

Cash flows from financing activities:
Issuance of debentures and notes	642.5		—
Issuance of common shares	50.3		6.0
Redemption of debentures and notes	(21.7)		(8.6)
Purchase of unallocated common shares by ESSOP	—		(50.0)
Dividends on common shares (including a special dividend paid in January
2021 of $304.0)	(501.5)		(187.7)
Other - net	(.8)		(.5)
Total	168.7		(240.8)

Increase (decrease) in cash	14.7		16.1
Cash, beginning of period	118.7		78.8
Cash, end of period	$	133.4	$	95.0

Supplemental cash flow information:
Cash paid (received) during the period for: Interest	$	40.9	$	41.3
Income taxes	$	162.4	$	98.2

See accompanying Notes to Consolidated Financial Statements.


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 2020 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. Recent pronouncements are discussed below.

Effective January 1, 2020, the Company adopted the FASB’s accounting guidance on current expected credit loss ("CECL") which requires the immediate recognition of estimated credit losses expected to occur over the remaining life of certain financial assets measured at amortized cost, primarily including the Company’s reinsurance recoverables, and its accounts and notes receivable. CECL replaced the incurred loss impairment model that recognized losses when a probability threshold was met with a requirement to recognize lifetime expected credit losses immediately when a financial asset is originated or purchased and at subsequent measurement dates. The expected credit losses, and subsequent adjustment to such losses, are recorded through an allowance account that is deducted from the amortized cost basis of the financial asset, with the net carrying value of the asset presented on the consolidated balance sheet.

The guidance relating to financial assets measured at amortized cost was adopted on a modified retrospective basis, resulting in a net of tax adjustment to January 1, 2020 retained earnings of $2.3. The Company’s January 1, 2020 credit loss allowance of $30.1 was comprised of $14.5 related to reinsurance recoverables, $15.5 related to accounts and notes receivable, and an immaterial amount related to held to maturity securities. The September 30, 2021 allowance included $16.0 related to reinsurance recoverables and $21.5 related to accounts and notes receivable. No significant changes were made to the allowance during the nine months ended September 30, 2021.

The guidance also modified the impairment model for available for sale fixed maturity securities by requiring the recognition of credit losses through an allowance account, as opposed to a charge that cannot be revised should the underlying security recover. Under the guidance, the length of time a security has been in an unrealized loss position will no longer impact the determination as to whether a credit loss exists. The revised guidance for available for sale fixed maturity securities was adopted on a prospective basis and the related disclosures summarizing this standard’s impact on the Company’s investment portfolio are included in Note 3.

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.

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

Immaterial Adjustment - The Company recorded immaterial adjustments to present revenues gross of the applicable commission expenses in the September 30, 2020 consolidated statements of income and comprehensive income by: increasing net premiums earned by $126.2 and $327.6 for the quarter and nine months, respectively, decreasing title, escrow and other fees by $58.3 and $140.7 for the quarter and nine months, respectively, and increasing underwriting, acquisition, and other expenses by $67.9 and $186.8 for the quarter and nine months, respectively. These immaterial adjustments were made to conform all prior periods to the current presentation and had no impact on net income (loss), comprehensive income (loss) or shareholders' equity.

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 (loss) available to common stockholders by the weighted-average number of common shares actually outstanding for the periods presented. Diluted earnings per share are similarly calculated with the inclusion of dilutive common stock equivalents. The following table provides a reconciliation of net income (loss) and the number of shares used in basic and diluted earnings per share calculations.


	Quarters Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
Numerator:
Basic and diluted earnings per share -
income (loss) available to common stockholders	$	88.7	$	246.0	$	907.3	$	38.9



Denominator:
Basic earnings per share -
weighted-average shares (a)	301,577,493		297,729,418		301,247,397		298,526,123
Effect of dilutive securities - stock based
compensation awards	1,961,865		261,404		1,661,091		489,403
Diluted earnings per share -
adjusted weighted-average shares (a)	303,539,358		297,990,822		302,908,488		299,015,526
Earnings per share: Basic	$	.29	$	.83	$	3.01	$	.13
Diluted	$	.29	$	.83	$	3.00	$	.13

Anti-dilutive common stock equivalents
excluded from earnings per share computations:
Stock based compensation awards	—		8,063,111		292,500		5,858,669

__________

(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. Such shares are issued and outstanding, and have the same voting and other rights applicable to all common shares.

3. Investments:

The Company classifies its 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 maturity portfolio is classified as available for sale. As of June 30, 2020 the Company changed its intent to hold its tax exempt municipal bond portfolio until maturity and consequently, reclassified these securities from their previous held to maturity designation to available for sale. As a result, net of tax unrealized gains of $48.5 were recognized in other comprehensive income as of that date.

Fixed maturity 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. 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).

The status and fair value changes of each of the fixed maturity investments are reviewed at least once per quarter during the year to assess whether a decline in fair value of an investment below its cost basis is the result of a credit loss. Factors considered in making this assessment include a security's market price history, as well as the issuer's operating results, financial condition and liquidity, its ability to access capital markets and to make scheduled principal or interest payments, credit rating trends, most current audited financial statements, industry and securities markets conditions and analyst expectations. 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. The Company recorded no allowance for credit losses as of September 30, 2021, and December 31, 2020.

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:
September 30, 2021:
U.S. & Canadian Governments	$	1,952.5	$	59.2	$	5.7	$	2,006.0
Tax-exempt	956.3		48.5		—		1,004.8
Corporate	7,228.0		294.1		46.8		7,475.3
	$	10,136.9	$	401.9	$	52.5	$	10,486.3

December 31, 2020:
U.S. & Canadian Governments	$	1,967.1	$	96.4	$	.3	$	2,063.2
Tax-exempt	997.1		66.3		—		1,063.5
Corporate	6,933.3		440.1		3.4		7,370.0
	$	9,897.6	$	602.9	$	3.8	$	10,496.8


	Amortized Cost		Estimated Fair Value
Fixed Maturity Securities Stratified by Contractual Maturity at September 30, 2021:
Due in one year or less	$	1,142.3	$	1,154.3
Due after one year through five years	5,048.3		5,301.6
Due after five years through ten years	3,857.2		3,941.5
Due after ten years	89.0		88.7
	$	10,136.9	$	10,486.3

The following table reflects the Company's gross unrealized losses and fair value, aggregated by category and length of time that individual available for sale 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, 2021:

Fixed Maturity Securities:
U.S. & Canadian Governments	$	482.9	$	5.7	$	—	$	—	$	482.9	$	5.7

Corporate	1,796.4		46.8		—		—		1,796.4		46.8
	$	2,279.4	$	52.5	$	—	$	—	$	2,279.4	$	52.5

Number of securities in
unrealized loss position			353				2				355








December 31, 2020:

Fixed Maturity Securities:
U.S. & Canadian Governments	$	416.4	$	.3	$	—	$	—	$	416.4	$	.3
Corporate	333.6		3.4		—		—		333.6		3.4
	$	750.0	$	3.8	$	—	$	—	$	750.0	$	3.8

Number of securities in
unrealized loss position			74				3				77

In the above tables the unrealized losses on fixed maturity securities are primarily deemed to reflect changes in the interest rate environment. As part of its assessment of credit losses, the Company considers its intent and ability to continue to hold the securities until cost recovery, principally in consideration of its asset and liability matching objectives.

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, 2021	$	3,754.7	$	1,185.3	$	112.0	$	4,828.0
December 31, 2020	$	3,269.7	$	1,028.1	$	243.0	$	4,054.8

During the third quarter and first nine months of 2021 and 2020, the Company recognized pretax unrealized investment gains (losses) of $(199.3) and $288.1, respectively for 2021, and $79.2 and $(529.4), respectively for 2020, 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, 2021 and 2020 were $(178.3) and $245.9 for the third quarter and first nine months of 2021, respectively, and $78.9 and $(520.6) for the third quarter and first nine months of 2020, 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 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) 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, 2021 and December 31, 2020.

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, 2021:	Level 1		Level 2		Level 3		Total
Available for sale:
Fixed maturity securities:
U.S. & Canadian Governments	$	1,277.3	$	728.6	$	—	$	2,006.0
Tax-exempt	—		1,004.8		—		1,004.8
Corporate	—		7,464.8		10.5		7,475.3
Short-term investments	1,102.1		—		—		1,102.1
Equity securities	$	4,826.1	$	—	$	1.9	$	4,828.0

As of December 31, 2020:
Available for sale:
Fixed maturity securities:
U.S. & Canadian Governments	$	1,262.2	$	801.0	$	—	$	2,063.2
Tax-exempt	—		1,063.5		—		1,063.5
Corporate	—		7,359.5		10.5		7,370.0
Short-term investments	749.6		—		—		749.6
Equity securities	$	4,052.9	$	—	$	1.8	$	4,054.8

There were no transfers between Levels 1, 2 or 3 during the quarter ended September 30, 2021.

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.

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. 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 deferred income taxes, are recorded directly as a component of accumulated other comprehensive income in shareholders' equity. At September 30, 2021, the Company and its subsidiaries did not have significant amounts of 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				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
Investment income:
Fixed maturity securities	$	67.3	$	71.3	$	209.7	$	218.3
Equity securities	45.0		36.1		116.6		111.1
Short-term investments	—		.1		.1		2.3
Other sources	.8		.3		1.6		2.7
Gross investment income	113.2		107.9		328.1		334.5
Investment expenses (a)	1.5		1.5		4.5		5.1
Net investment income	$	111.6	$	106.4	$	323.6	$	329.3

Investment gains (losses):
From actual transactions:
Fixed maturity securities:
Gains	$	1.0	$	6.3	$	2.6	$	10.0
Losses	(.1)		(5.6)		(.7)		(17.9)
Net	.8		.6		1.9		(7.8)
Equity securities:
Gains	31.2		.7		68.0		21.7
Losses	(25.5)		—		(54.3)		(1.2)
Net	5.7		.7		13.6