Company Quick10K Filing
Quick10K
Old Republic
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$21.19 303 $6,410
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
8-K 2019-01-30 Officers, Exhibits
8-K 2019-01-24 Earnings, Exhibits
8-K 2019-01-24 Earnings, Exhibits
8-K 2018-10-25 Earnings, Exhibits
8-K 2018-08-23 Officers, Shareholder Vote, Exhibits
8-K 2018-07-26 Earnings, Exhibits
8-K 2018-05-25 Shareholder Vote
8-K 2018-04-26 Earnings, Exhibits
8-K 2018-03-15 Other Events, Exhibits
8-K 2018-01-25 Earnings, Exhibits
Y Alleghany
ESGR Enstar
MCY Mercury General
PRA Proassurance
HCI HCI Group
HRTG Heritage Insurance Holdings
PTVCA Protective Insurance
AFH Atlas Financial Holdings
UNAM Unico American
HGH Hartford Financial Services Group
ORI 2018-09-30
Item 3 - Quantitative and Qualitative Disclosure About Market Risk
Item 4 - Controls and Procedures
Item 1 - Legal Proceedings
Item 1A - Risk Factors
Item 6 - Exhibits
EX-31.1 ceocertificationex311septe.htm
EX-31.2 cfocertificationex312septe.htm
EX-32.1 ceocertificationex321septe.htm
EX-32.2 cfocertificationex322septe.htm

Old Republic Earnings 2018-09-30

ORI 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 a3q201810-q.htm 10-Q Document


 
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: September 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
September 30, 2018
Common Stock / $1 par value
 
302,643,075


There are 54 pages in this report





OLD REPUBLIC INTERNATIONAL CORPORATION
 
Report on Form 10-Q / September 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 - 50
 
 
 
 
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
51
 
 
 
 
CONTROLS AND PROCEDURES
51
 
 
 
PART II
OTHER INFORMATION:
 
 
 
 
 
ITEM 1 - LEGAL PROCEEDINGS
52
 
 
 
 
ITEM 1A - RISK FACTORS
52
 
 
 
 
ITEM 6 - EXHIBITS
52
 
 
SIGNATURE
53
 
 
EXHIBIT INDEX
54





2



Old Republic International Corporation and Subsidiaries
Consolidated Balance Sheets
($ in Millions, Except Share Data)
 
(Unaudited)
 
 
 
September 30,
 
December 31,
 
2018
 
2017
Assets
 
 
 
Investments:
 
 
 
Available for sale:
 
 
 
Fixed maturity securities (at fair value) (amortized cost: $8,187.5 and $8,162.2)
$
8,070.7

 
$
8,282.3

Short-term investments (at fair value which approximates cost)
580.7

 
670.1

Total
8,651.4

 
8,952.4

Held to maturity:
 
 
 
Fixed maturity securities (at amortized cost) (fair value: $1,022.4 and $1,069.2)
1,050.5

 
1,067.4

Equity securities (at fair value) (cost: $2,820.9 and $2,629.9)
3,474.3

 
3,265.5

Other investments
34.6

 
32.5

Total investments
13,211.0

 
13,318.0

Other Assets:
 
 
 
Cash
115.2

 
125.9

Securities and indebtedness of related parties
19.1

 
12.8

Accrued investment income
93.9

 
92.4

Accounts and notes receivable
1,643.0

 
1,469.7

Prepaid federal income taxes
114.3

 
114.3

Reinsurance balances and funds held
169.0

 
141.6

Reinsurance recoverable: Paid losses
58.9

 
60.5

 Policy and claim reserves
3,578.3

 
3,311.3

Deferred policy acquisition costs
316.6

 
297.8

Sundry assets
482.6

 
458.8

Total Other Assets
6,591.3

 
6,085.5

Total Assets
$
19,802.3

 
$
19,403.5

Liabilities, Preferred Stock, and Common Shareholders' Equity
 
 
 
Liabilities:
 
 
 
Losses, claims, and settlement expenses
$
9,482.9

 
$
9,237.6

Unearned premiums
2,245.8

 
1,971.5

Other policyholders' benefits and funds
204.6

 
204.7

Total policy liabilities and accruals
11,933.4

 
11,413.9

Commissions, expenses, fees, and taxes
510.8

 
547.7

Reinsurance balances and funds
703.2

 
566.9

Federal income tax payable: Current
3.7

 
6.5

                                              Deferred
54.7

 
100.5

Debt
981.1

 
1,448.7

Sundry liabilities
303.9

 
585.8

Commitments and contingent liabilities

 

Total Liabilities
14,491.1

 
14,670.2

Preferred Stock (1)

 

Common Shareholders' Equity:
 
 
 
Common stock (1)
302.6

 
269.2

Additional paid-in capital
1,275.6

 
815.2

Retained earnings
4,014.6

 
3,206.9

Accumulated other comprehensive income (loss)
(217.7
)
 
474.2

Unallocated ESSOP shares (at cost)
(64.0
)
 
(32.4
)
Total Common Shareholders' Equity
5,311.2

 
4,733.3

Total Liabilities, Preferred Stock and Common Shareholders' Equity
$
19,802.3

 
$
19,403.5

________

(1)
At September 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 302,643,075 and 269,238,727 were issued as of September 30, 2018 and December 31, 2017, respectively. At September 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
 
Nine Months Ended
 
September 30,
 
September 30,
 
2018
 
2017
 
2018
 
2017
Revenues:
 
 
 
 
 
 
 
Net premiums earned
$
1,388.6

 
$
1,312.0

 
$
3,914.4

 
$
3,752.6

Title, escrow, and other fees
116.2

 
121.4

 
341.0

 
344.6

Total premiums and fees
1,504.8

 
1,433.4

 
4,255.5

 
4,097.3

Net investment income
108.7

 
103.3

 
321.5

 
305.7

Other income
30.4

 
20.4

 
91.1

 
76.3

Total operating revenues
1,644.0

 
1,557.2

 
4,668.2

 
4,479.4

Investment gains (losses):
 
 
 
 
 
 
 
Realized from actual transactions
7.3

 
35.8

 
54.8

 
57.5

Unrealized from changes in fair value of
 
 
 
 
 
 
 
equity securities
128.4

 

 
17.7

 

Unrealized from impairments

 

 

 

Total realized and unrealized investment
 
 
 
 
 
 
 
gains (losses)
135.7

 
35.8

 
72.6

 
57.5

Total revenues
1,779.7

 
1,593.0

 
4,740.9

 
4,536.9

 
 
 
 
 
 
 
 
Benefits, Claims and Expenses:
 
 
 
 
 
 
 
Benefits, claims and settlement expenses
615.1

 
759.0

 
1,806.3

 
1,927.1

Dividends to policyholders
4.2

 
7.3

 
14.4

 
17.5

Underwriting, acquisition, and other expenses
815.2

 
751.1

 
2,310.0

 
2,173.1

Interest and other charges
9.9

 
15.8

 
34.3

 
48.3

Total expenses
1,444.6

 
1,533.3

 
4,165.2

 
4,166.2

Income (loss) before income taxes (credits)
335.1

 
59.6

 
575.7

 
370.7

 
 
 
 
 
 
 
 
Income Taxes (Credits):
 
 
 
 
 
 
 
Current
34.2

 
52.9

 
95.7

 
138.4

Deferred
25.6

 
(39.4
)
 
2.9

 
(28.6
)
Total
59.8

 
13.4

 
98.6

 
109.7

 
 
 
 
 
 
 
 
Net Income
$
275.2

 
$
46.1

 
$
477.0

 
$
260.9

 
 
 
 
 
 
 
 
Net Income Per Share:
 
 
 
 
 
 
 
Basic
$
.92

 
$
.18

 
$
1.63

 
$
1.00

Diluted
$
.92

 
$
.17

 
$
1.59

 
$
.91

 
 
 
 
 
 
 
 
Average shares outstanding: Basic
299,006,345

 
261,380,896

 
292,565,008

 
261,181,220

Diluted
300,374,004

 
298,529,626

 
301,125,090

 
298,559,757

 
 
 
 
 
 
 
 
Dividends Per Common Share:
 
 
 
 
 
 
 
Cash
$
.1950

 
$
.1900

 
$
.5850

 
$
.5700



See accompanying Notes to Consolidated Financial Statements.

4



Old Republic International Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income (Unaudited)
($ in Millions)
 
Quarters Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2018
 
2017
 
2018
 
2017
Net Income As Reported
$
275.2

 
$
46.1

 
$
477.0

 
$
260.9

 
 
 
 
 
 
 
 
Other comprehensive income (loss):
 
 
 
 
 
 
 
Unrealized gains (losses) on securities not included
 
 
 
 
 
 
 
in the statement of income:
 
 
 
 
 
 
 
Unrealized gains (losses) on securities before
 
 
 
 
 
 
 
reclassifications
(24.6
)
 
124.1

 
(236.3
)
 
220.0

Amounts reclassified as investment (gains)
 
 
 
 
 
 
 
losses from actual transactions in the
 
 
 
 
 
 
 
statements of income
1.2

 
(35.8
)
 
(.4
)
 
(57.5
)
Pretax unrealized gains (losses) on securities
(23.4
)
 
88.3

 
(236.8
)
 
162.5

Deferred income taxes (credits)
(4.9
)
 
31.0

 
(49.8
)
 
56.9

Net unrealized gains (losses) on securities, net of tax
(18.4
)
 
57.3

 
(186.9
)
 
105.5

Defined benefit pension plans:
 
 
 
 
 
 
 
Net pension adjustment before reclassifications

 

 

 

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

 
.1

 
2.4

 
.3

Net adjustment related to defined benefit
 
 
 
 
 
 
 
pension plans
.8

 
.1

 
2.4

 
.3

Deferred income taxes (credits)
.1

 

 
.5

 
.1

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

 

 
1.9

 
.2

Foreign currency translation and other adjustments
2.6

 
8.6

 
(4.7
)
 
11.9

Net adjustments
(15.1
)
 
66.1

 
(189.7
)
 
117.7

Comprehensive Income (Loss)
$
260.0

 
$
112.2

 
$
287.3

 
$
378.7




See accompanying Notes to Consolidated Financial Statements.

5



Old Republic International Corporation and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
($ in Millions)
 
 
Nine Months Ended
 
 
September 30,
 
 
2018
 
2017
Cash flows from operating activities:
 
 
 
 
Net income
 
$
477.0

 
$
260.9

Adjustments to reconcile net income to
 
 
 
 
net cash provided by operating activities:
 
 
 
 
Deferred policy acquisition costs
 
(18.7
)
 
(27.7
)
Premiums and other receivables
 
(173.2
)
 
(199.4
)
Unpaid claims and related items
 
148.5

 
254.7

Unearned premiums and other policyholders' liabilities
 
103.8

 
164.2

Income taxes
 
.8

 
11.9

Prepaid federal income taxes
 

 
(31.8
)
Reinsurance balances and funds
 
110.4

 
75.0

Realized investment (gains) losses from actual transactions
 
(54.8
)
 
(57.5
)
Unrealized investment (gains) losses from changes in fair value
 
 
 
 
of equity securities
 
(17.7
)
 

Accounts payable, accrued expenses and other
 
21.0

 
71.8

Total
 
597.1

 
522.1

 
 
 
 
 
Cash flows from investing activities:
 
 
 
 
Fixed maturity securities:
 
 
 
 
Available for sale:
 
 
 
 
Maturities and early calls
 
758.9

 
632.1

Sales
 
222.6

 
381.9

Sales of:
 
 
 
 
Equity securities
 
294.5

 
233.5

Other - net
 
13.3

 
27.1

Purchases of:
 
 
 
 
Fixed maturity securities:
 
 
 
 
Available for sale
 
(1,027.6
)
 
(1,046.7
)
Held to maturity
 

 
(114.5
)
Equity securities
 
(432.0
)
 
(295.6
)
Other - net
 
(40.4
)
 
(44.3
)
Net decrease (increase) in short-term investments
 
88.7

 
(163.4
)
Other - net
 
(6.8
)
 

Total
 
(128.7
)
 
(389.9
)
 
 
 
 
 
Cash flows from financing activities:
 
 
 
 
Issuance of common shares
 
12.2

 
14.0

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)
 
(440.5
)
 
(148.3
)
Other - net
 
(8.6
)
 
(.3
)
Total
 
(479.1
)
 
(138.6
)
 
 
 
 
 
Increase (decrease) in cash
 
(10.7
)
 
(6.4
)
Cash, beginning of period
 
125.9

 
145.7

Cash, end of period
 
$
115.2

 
$
139.2

 
 
 
 
 
Supplemental cash flow information:
 
 
 
 
Cash paid (received) during the period for: Interest
 
$
50.4

 
$
62.2

                                                                         Income taxes
 
$
97.9

 
$
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. The Company's prospective adoption of this guidance is not expected to have a material impact on the Company's consolidated financial statements.

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 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
 
Nine Months Ended
 
September 30,
 
September 30,
 
2018
 
2017
 
2018
 
2017
Numerator:
 
 
 
 
 
 
 
Net income
$
275.2

 
$
46.1

 
$
477.0

 
$
260.9

Numerator for basic earnings per share -
 
 
 
 
 
 
 
income available to common stockholders
275.2

 
46.1

 
477.0

 
260.9

Adjustment for interest expense incurred on
 
 
 
 
 
 
 
assumed conversion of convertible notes

 
3.6

 
3.1

 
10.9

Numerator for diluted earnings per share -
 
 
 
 
 
 
 
income available to common stockholders
 
 
 
 
 
 
 
after assumed conversion of convertible notes
$
275.2

 
$
49.8

 
$
480.1

 
$
271.8

 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
Denominator for basic earnings per share -
 
 
 
 
 
 
 
weighted-average shares (a)
299,006,345

 
261,380,896

 
292,565,008

 
261,181,220

Effect of dilutive securities - stock based
 
 
 
 
 
 
 
   compensation awards
1,367,659

 
1,349,148

 
1,381,914

 
1,603,514

Effect of dilutive securities - convertible notes

 
35,799,582

 
7,178,168

 
35,775,023

Denominator for diluted earnings per share -
 
 
 
 
 
 
 
adjusted weighted-average shares
 
 
 
 
 
 
 
and assumed conversion of convertible notes (a)
300,374,004

 
298,529,626

 
301,125,090

 
298,559,757

Earnings per share: Basic
$
.92

 
$
.18

 
$
1.63

 
$
1.00

Diluted
$
.92

 
$
.17

 
$
1.59

 
$
.91

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

 
1,403,500

 

 
1,403,500

Total

 
1,403,500

 

 
1,403,500

__________

(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 September 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 nine months ended September 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:
 
 
 
 
 
 
 
September 30, 2018:
 
 
 
 
 
 
 
Available for sale:
 
 
 
 
 
 
 
U.S. & Canadian Governments
$
1,472.9

 
$
.6

 
$
34.8

 
$
1,438.6

Corporate
6,714.6

 
34.8

 
117.4

 
6,632.0

 
$
8,187.5

 
$
35.5

 
$
152.3

 
$
8,070.7

 
 
 
 
 
 
 
 
Held to maturity:
 
 
 
 
 
 
 
Tax-exempt
$
1,050.5

 
$
.3

 
$
28.4

 
$
1,022.4

 
 
 
 
 
 
 
 
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 September 30, 2018:
 
 
 
Available for sale:
 
 
 
Due in one year or less
$
606.4

 
$
607.2

Due after one year through five years
4,563.1

 
4,517.1

Due after five years through ten years
2,931.5

 
2,856.4

Due after ten years
86.5

 
89.9

 
$
8,187.5

 
$
8,070.7

 
 
 
 
Held to maturity:
 
 
 
Due in one year or less
$

 
$

Due after one year through five years
155.9

 
152.9

Due after five years through ten years
891.4

 
866.4

Due after ten years
3.1

 
3.0

 
$
1,050.5

 
$
1,022.4


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
September 30, 2018:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed Maturity Securities:
 
 
 
 
 
 
 
 
 
 
 
Available for sale:
 
 
 
 
 
 
 
 
 
 
 
  U.S. & Canadian Governments
$
943.4

 
$
22.6

 
$
386.5

 
$
12.2

 
$
1,329.9

 
$
34.8

  Corporate
3,821.9

 
84.7

 
778.1

 
32.6

 
4,600.1

 
117.4

 
$
4,765.3

 
$
107.4

 
$
1,164.7

 
$
44.9

 
$
5,930.1

 
$
152.3

 
 
 
 
 
 
 
 
 
 
 
 
Number of available for sale
 
 
 
 
 
 
 
 
 
 
 
securities in unrealized
 
 
 
 
 
 
 
 
 
 
 
loss position
 
 
898

 
 
 
265

 
 
 
1,163

 
 
 
 
 
 
 
 
 
 
 
 
Held to maturity:
 
 
 
 
 
 
 
 
 
 
 
  Tax-exempt
$
576.4

 
$
9.9

 
$
401.3

 
$
18.4

 
$
977.8

 
$
28.4

 
 
 
 
 
 
 
 
 
 
 
 
Number of held to maturity
 
 
 
 
 
 
 
 
 
 
 
securities in unrealized
 
 
 
 
 
 
 
 
 
 
 
loss position
 
 
204

 
 
 
144

 
 
 
348

 
 
 
 
 
 
 
 
 
 
 
 
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:
 
 
 
 
 
 
 
September 30, 2018
$
2,820.9

 
$
695.7

 
$
42.3

 
$
3,474.3

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 nine months of 2018, the Company recognized unrealized investment gains (losses) of $128.4 and $17.7 emanating from changes in the fair value of equity securities in the consolidated

10



statements of income. Changes in the fair value of equity securities still held at September 30, 2018 were $137.1 and $67.4 for the quarter and first nine months of 2018, 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: 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 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 September 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 September 30, 2018:
 
Level 1
 
Level 2
 
Level 3
 
Total
Available for sale:
 
 
 
 
 
 
 
 
Fixed maturity securities:
 
 
 
 
 
 
 
 
U.S. & Canadian Governments
 
$
642.6

 
$
796.0

 
$

 
$
1,438.6

Corporate
 

 
6,621.5

 
10.5

 
6,632.0

Short-term investments
 
580.7

 

 

 
580.7

Held to maturity:
 
 
 
 
 
 
 
 
Fixed maturity securities:
 
 
 
 
 
 
 
 
Tax-exempt
 

 
1,022.4

 

 
1,022.4

Equity securities
 
$
3,472.6

 
$

 
$
1.6

 
$
3,474.3

 
 
 
 
 
 
 
 
 
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 nine months ended September 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 September 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
 
Nine Months Ended
 
September 30,
 
September 30,
 
2018
 
2017
 
2018
 
2017
Investment income from:
 
 
 
 
 
 
 
Fixed maturity securities
$
74.4

 
$
72.9

 
$
224.2

 
$
220.4

Equity securities
31.5

 
28.7

 
91.3

 
81.6

Short-term investments
2.7

 
1.6

 
6.9

 
3.6

Other sources
1.4

 
1.0

 
3.6

 
3.2

Gross investment income
110.2

 
104.4

 
326.2

 
309.0

Investment expenses (a)
1.4

 
1.1

 
4.6

 
3.3

Net investment income
$
108.7

 
$
103.3

 
$
321.5

 
$
305.7

 
 
 
 
 
 
 
 
Investment gains (losses):
 
 
 
 
 
 
 
From actual transactions:
 
 
 
 
 
 
 
Fixed maturity securities:
 
 
 
 
 
 
 
Gains
$
.5

 
$
2.6

 
$
1.6

 
$
17.0

Losses
(1.7
)
 

 
(2.6
)
 
(4.9
)
Net
(1.2
)
 
2.5

 
(1.0
)
 
12.1

Equity securities:
 
 
 
 
 
 
 
Gains
8.6

 
39.4

 
61.5

 
51.6

Losses

 
(6.3
)
 
(7.1
)
 
(6.3
)
Net
8.6

 
33.0

 
54.4

 
45.3

Other long-term investments, net

 
.1

 
1.5

 

Total from actual transactions
7.3

 
35.8

 
54.8

 
57.5

From unrealized changes in fair value of equity securities
128.4

 

 
17.7

 

From impairments

 

 

 

Total realized and unrealized investment gains (losses)
135.7

 
35.8

 
72.6

 
57.5

Current and deferred income taxes (credits)
28.5

 
12.5

 
15.2

 
20.1

Post tax realized and unrealized investment gains (losses)
$
107.2

 
$
23.2

 
$
57.4

 
$
37.3

 
 
 
 
 
 
 
 
Changes in unrealized investment gains (losses)
 
 
 
 
 
 
 
reflected directly in shareholders' equity on:
 
 
 
 
 
 
 
Fixed maturity securities
$
(23.4
)
 
$
4.4

 
$
(236.4
)
 
$
27.4

Less: Deferred income taxes (credits)
(5.0
)
 
1.7

 
(49.8
)
 
9.8

 
(18.4
)
 
2.7

 
(186.6
)
 
17.6

 
 
 
 
 
 
 
 
Equity securities & other long-term investments

 
83.8

 
(.3
)
 
135.0

Less: Deferred income taxes (credits)

 
29.2

 

 
47.1

 

 
54.6

 
(.2
)
 
87.8

Net changes in unrealized investment gains (losses)
$
(18.4
)
 
$
57.3

 
$
(186.9
)
 
$
105.5

__________

(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:
 
Nine Months Ended
 
September 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
1,717.4

 
1,650.0

Title Insurance
72.0

 
69.5

RFIG Run-off (a)
43.7

 
277.6

Other
15.7

 
15.7

Sub-total
1,849.0

 
2,012.9

Change in provision for insured events of prior years:
 
 
 
General Insurance
7.3

 
41.9

Title Insurance
(27.0
)
 
(34.9
)
RFIG Run-off (a)
(19.8
)
 
(90.4
)
Other
(3.2
)
 
(1.6
)
Sub-total
(42.7
)
 
(85.0
)
Total incurred claims and claim adjustment expenses (a)
1,806.2

 
1,927.9

Payments:
 
 
 
Claims and claim adjustment expenses attributable to
 
 
 
   insured events of the current year:
 
 
 
General Insurance
543.1

 
501.0

Title Insurance
5.7

 
2.9

RFIG Run-off (b)
1.6

 
4.8

Other
10.6

 
9.8

Sub-total
561.1

 
518.7

Claims and claim adjustment expenses attributable to
 
 
 
   insured events of prior years:
 
 
 
General Insurance
959.4

 
960.2

Title Insurance
44.9

 
45.5

RFIG Run-off (b)
87.3

 
144.6

Other
4.7

 
3.5

Sub-total
1,096.4

 
1,153.9

Total payments (b)
1,657.6

 
1,672.6

Amount of reserves for unpaid claims and claim adjustment expenses
 
 
 
at the end of each period, net of reinsurance losses recoverable: (c)
 
 
 
General Insurance
5,693.8

 
5,480.6

Title Insurance
554.0

 
588.1

RFIG Run-off
206.5

 
611.7

Other
10.6

 
14.4

Sub-total
6,465.0

 
6,695.1

Reinsurance losses recoverable
3,017.8

 
2,999.3

Gross reserves at end of period
$
9,482.9

 
$
9,694.4

__________

(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 $.7 and $5.0 for the year-to-date periods ended September 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 $(12.6) and $(3.5), 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 $3.5 and $10.0 for the year-to-date periods ended September 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:
 
 
September 30,
 
September 30,
 
December 31,
 
 
2018
 
2017
 
2017
 
General Insurance
$
2,696.3

 
$
2,607.7

 
$
2,585.9

 
Title Insurance
466.1

 
509.3

 
479.3

 
RFIG Run-off
29.6

 
327.3

 
30.5

 
Other
4.5

 
6.8

 
4.7

 
Total
$
3,196.6

 
$
3,451.3

 
$
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 September 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
 
Nine Months Ended
 
September 30,
 
September 30,
 
2018
 
2017
 
2018
 
2017
General Insurance:
 
 
 
 
 
 
 
Net premiums earned
$
841.5

 
$
801.3

 
$
2,441.3

 
$
2,313.7

Net investment income and other income
116.3

 
100.4

 
344.4

 
313.9

Total revenues excluding investment gains (losses)
$
957.8

 
$
901.8

 
$
2,785.7

 
$
2,627.6

Segment pretax operating income (loss) (a)(c)
$
105.1

 
$
59.7

 
$
279.1

 
$
216.2

Income tax expense (credits) on above
$
18.0

 
$
15.8

 
$
46.7

 
$
61.5

 
 
 
 
 
 
 
 
Title Insurance:
 
 
 
 
 
 
 
Net premiums earned
$
524.5

 
$
475.4

 
$
1,402.5

 
$
1,325.8

Title, escrow and other fees
116.2

 
121.4

 
341.0

 
344.6

Sub-total
640.7

 
596.8

 
1,743.6

 
1,670.5

Net investment income and other income
10.0

 
9.3

 
29.5

 
28.4

Total revenues excluding investment gains (losses)
$
650.8

 
$
606.1

 
$
1,773.1

 
$
1,699.0

Segment pretax operating income (loss) (a)
$
67.7

 
$
67.3

 
$
158.2

 
$
172.8

Income tax expense (credits) on above
$
14.0

 
$
23.4