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EX-31.1 - EXHIBIT - OLD REPUBLIC INTERNATIONAL CORPex311section302ceocertific.htm
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EXCEL - IDEA: XBRL DOCUMENT - OLD REPUBLIC INTERNATIONAL CORPFinancial_Report.xls


 
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, 2014 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, or a smaller reporting company. See definitions of "accelerated filer", "large accelerated filer", and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one).

Large accelerated filer x
Accelerated filer o
 
 
Non-accelerated filer    o
Smaller reporting company 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, 2014
Common Stock / $1 par value
 
260,889,104





There are 48 pages in this report





OLD REPUBLIC INTERNATIONAL CORPORATION
 
Report on Form 10-Q / September 30, 2014
 
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 - 17
 
 
 
 
MANAGEMENT ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS
18 - 44
 
 
 
 
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
45
 
 
 
 
CONTROLS AND PROCEDURES
45
 
 
 
PART II
OTHER INFORMATION:
 
 
 
 
 
ITEM 1 - LEGAL PROCEEDINGS
46
 
 
 
 
ITEM 1A - RISK FACTORS
46
 
 
 
 
ITEM 6 - EXHIBITS
46
 
 
SIGNATURE
47
 
 
EXHIBIT INDEX
48





2



Old Republic International Corporation and Subsidiaries
Consolidated Balance Sheets
($ in Millions, Except Share Data)
 
(Unaudited)
 
 
 
September 30,
 
December 31,
 
2014
 
2013
Assets
 
 
 
Investments:
 
 
 
Available for sale:
 
 
 
Fixed maturity securities, at fair value (amortized cost: $7,980.7 and $8,477.3)
$
8,286.8

 
$
8,712.3

Equity securities, at fair value (cost: $1,229.1 and $632.0)
1,437.3

 
1,004.2

Short-term investments (at fair value which approximates cost)
1,011.0

 
1,124.8

Miscellaneous investments
24.3

 
21.6

Total available for sale
10,759.5

 
10,863.1

Trading equity portfolio at fair value (cost: $29.4 and $-)
28.2

 

Other investments
5.9

 
5.3

Total investments
10,793.7

 
10,868.5

Other Assets:
 
 
 
Cash
219.9

 
153.3

Securities and indebtedness of related parties
22.2

 
18.0

Accrued investment income
90.8

 
87.2

Accounts and notes receivable
1,389.9

 
1,190.5

Federal income tax recoverable: Current
32.1

 
114.7

 Deferred
50.7

 
48.4

Prepaid federal income taxes
38.7

 

Reinsurance balances and funds held
162.0

 
189.2

Reinsurance recoverable: Paid losses
64.9

 
64.9

 Policy and claim reserves
3,421.2

 
3,150.8

Deferred policy acquisition costs
227.5

 
192.6

Sundry assets
472.6

 
455.7

Total Other Assets
6,193.1

 
5,665.9

Total Assets
$
16,986.8

 
$
16,534.4

Liabilities, Preferred Stock, and Common Shareholders' Equity
 
 
 
Liabilities:
 
 
 
Losses, claims, and settlement expenses
$
9,034.9

 
$
9,433.5

Unearned premiums
1,741.4

 
1,487.8

Other policyholders' benefits and funds
201.3

 
207.8

Total policy liabilities and accruals
10,977.7

 
11,129.2

Commissions, expenses, fees, and taxes
365.6

 
409.8

Reinsurance balances and funds
542.1

 
441.9

Debt
965.0

 
569.2

Sundry liabilities
213.2

 
209.0

Commitments and contingent liabilities

 

Total Liabilities
13,063.8

 
12,759.4

Preferred Stock (1)

 

Common Shareholders' Equity:
 
 
 
Common stock (1)
260.8

 
260.4

Additional paid-in capital
679.7

 
673.9

Retained earnings
2,690.5

 
2,485.3

Accumulated other comprehensive income
310.7

 
378.2

Unallocated ESSOP shares (at cost)
(18.9
)
 
(23.0
)
Total Common Shareholders' Equity
3,922.9

 
3,775.0

Total Liabilities, Preferred Stock and Common Shareholders' Equity
$
16,986.8

 
$
16,534.4

________

(1)
At September 30, 2014 and December 31, 2013, 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 260,889,104 and 260,462,217 were issued as of September 30, 2014 and December 31, 2013, respectively. At September 30, 2014 and December 31, 2013, 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,
 
2014
 
2013
 
2014
 
2013
Revenues:
 
 
 
 
 
 
 
Net premiums earned
$
1,159.0

 
$
1,163.4

 
$
3,291.7

 
$
3,323.6

Title, escrow, and other fees
97.5

 
108.8

 
270.2

 
336.5

Total premiums and fees
1,256.6

 
1,272.2

 
3,561.9

 
3,660.1

Net investment income
86.1

 
78.9

 
254.3

 
237.2

Other income
26.7

 
23.3

 
76.4

 
67.0

Total operating revenues
1,369.4

 
1,374.6

 
3,892.7

 
3,964.4

Realized investment gains (losses):
 
 
 
 
 
 
 
From sales and fair value adjustments
21.5

 
4.8

 
262.8

 
146.6

From impairments

 

 

 

Total realized investment gains (losses)
21.5

 
4.8

 
262.8

 
146.6

Total revenues
1,391.0

 
1,379.5

 
4,155.6

 
4,111.0

 
 
 
 
 
 
 
 
Benefits, Claims and Expenses:
 
 
 
 
 
 
 
Benefits, claims and settlement expenses
643.0

 
564.8

 
1,850.9

 
1,665.4

Dividends to policyholders
3.4

 
3.3

 
10.8

 
11.7

Underwriting, acquisition, and other expenses
617.9

 
656.0

 
1,759.3

 
1,886.3

Interest and other charges
5.1

 
5.4

 
16.4

 
16.8

Total expenses
1,269.6

 
1,229.7

 
3,637.5

 
3,580.3

Income before income taxes (credits)
121.4

 
149.7

 
518.0

 
530.6

 
 
 
 
 
 
 
 
Income Taxes (Credits):
 
 
 
 
 
 
 
Current
6.6

 
46.0

 
144.3

 
75.1

Deferred
28.8

 
.8

 
27.2

 
102.3

Total
35.5

 
46.8

 
171.6

 
177.5

 
 
 
 
 
 
 
 
Net Income
$
85.8

 
$
102.9

 
$
346.4

 
$
353.1

 
 
 
 
 
 
 
 
Net Income Per Share:
 
 
 
 
 
 
 
Basic
$
.33

 
$
.40

 
$
1.34

 
$
1.37

Diluted
$
.30

 
$
.36

 
$
1.21

 
$
1.24

 
 
 
 
 
 
 
 
Average shares outstanding: Basic
258,607,162

 
257,098,894

 
258,423,448

 
256,906,821

Diluted
295,049,613

 
293,444,269

 
294,989,032

 
292,985,034

 
 
 
 
 
 
 
 
Dividends Per Common Share:
 
 
 
 
 
 
 
Cash
$
.1825

 
$
.1800

 
$
.5475

 
$
.5400



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,
 
2014
 
2013
 
2014
 
2013
Net Income As Reported
$
85.8

 
$
102.9

 
$
346.4

 
$
353.1

 
 
 
 
 
 
 
 
Other comprehensive income (loss):
 
 
 
 
 
 
 
Unrealized gains (losses) on securities:
 
 
 
 
 
 
 
Unrealized gains (losses) on securities before
 
 
 
 
 
 
 
reclassifications
(81.5
)
 
25.9

 
169.8

 
(95.4
)
Amounts reclassified as realized investment
 
 
 
 
 
 
 
gains in the statements of income
(21.5
)
 
(4.8
)
 
(262.8
)
 
(146.6
)
Pretax unrealized gains (losses) on securities
(103.1
)
 
21.0

 
(92.9
)
 
(242.0
)
Deferred income taxes (credits)
(36.0
)
 
7.3

 
(32.6
)
 
(84.4
)
Net unrealized gains (losses) on securities, net of tax
(67.1
)
 
13.6

 
(60.3
)
 
(157.6
)
Defined benefit pension plans:
 
 
 
 
 
 
 
Net pension adjustment before reclassifications

 
79.3

 

 
79.3

Amounts reclassified as underwriting, acquisition,
 
 
 
 
 
 
 
and other expenses in the statements of income
(.4
)
 
3.5

 
(1.4
)
 
9.4

Net adjustment related to defined benefit
 
 
 
 
 
 
 
pension plans
(.4
)
 
82.9

 
(1.4
)
 
88.8

Deferred income taxes (credits)
(.1
)
 
29.0

 
(.5
)
 
31.0

Net adjustment related to defined benefit pension
 
 
 
 
 
 
 
plans, net of tax
(.3
)
 
53.9

 
(.9
)
 
57.7

Foreign currency translation and other adjustments
(5.1
)
 
2.4

 
(6.1
)
 
(5.2
)
Net adjustments
(72.5
)
 
70.0

 
(67.4
)
 
(105.1
)
Comprehensive Income (Loss)
$
13.3

 
$
172.9

 
$
278.9

 
$
247.9




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,
 
 
2014
 
2013
Cash flows from operating activities:
 
 
 
 
Net income
 
$
346.4

 
$
353.1

Adjustments to reconcile net income to
 
 
 
 
net cash provided by operating activities:
 
 
 
 
Deferred policy acquisition costs
 
(35.0
)
 
(24.0
)
Premiums and other receivables
 
(199.7
)
 
(94.9
)
Unpaid claims and related items
 
(541.5
)
 
64.0

Unearned premiums and other policyholders' liabilities
 
120.5

 
101.8

Income taxes
 
109.7

 
105.8

Prepaid federal income taxes
 
(38.7
)
 

Reinsurance balances and funds
 
127.4

 
63.6

Realized investment (gains) losses
 
(262.8
)
 
(146.6
)
Accounts payable, accrued expenses and other
 
3.7

 
36.1

Total
 
(370.0
)
 
459.0

 
 
 
 
 
Cash flows from investing activities:
 
 
 
 
Fixed maturity securities:
 
 
 
 
Maturities and early calls
 
624.4

 
958.2

Sales
 
806.1

 
159.7

Sales of:
 
 
 
 
Equity securities
 
557.0

 
172.5

Other - net
 
11.5

 
26.3

Purchases of:
 
 
 
 
Fixed maturity securities
 
(943.3
)
 
(1,494.1
)
Equity securities
 
(944.4
)
 
(169.6
)
Other - net
 
(36.4
)
 
(28.1
)
Purchase of a business
 
(2.8
)
 
(5.1
)
Net decrease (increase) in short-term investments
 
113.5

 
115.0

Other - net
 
(2.2
)
 
(.4
)
Total
 
183.3

 
(265.5
)
 
 
 
 
 
Cash flows from financing activities:
 
 
 
 
Issuance of debentures and notes
 
395.2

 

Issuance of common shares
 
5.0

 
6.1

Redemption of debentures and notes
 
(4.2
)
 
(3.7
)
Dividends on common shares
 
(141.2
)
 
(138.4
)
Other - net
 
(1.5
)
 
(2.3
)
Total
 
253.2

 
(138.4
)
 
 
 
 
 
Increase (decrease) in cash
 
66.5

 
55.0

Cash, beginning of period
 
153.3

 
101.2

Cash, end of period
 
$
219.9

 
$
156.3

 
 
 
 
 
Supplemental cash flow information:
 
 
 
 
Cash paid (received) during the period for: Interest
 
$
21.0

 
$
21.1

Income taxes
 
$
61.9

 
$
72.8



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 2013 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.

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 the results have been recorded for the interim periods. 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 (loss) 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.
 
Quarters Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2014
 
2013
 
2014
 
2013
Numerator:
 
 
 
 
 
 
 
Net income
$
85.8

 
$
102.9

 
$
346.4

 
$
353.1

Numerator for basic earnings per share -
 
 
 
 
 
 
 
income available to common stockholders
85.8

 
102.9

 
346.4

 
353.1

Adjustment for interest expense incurred on
 
 
 
 
 
 
 
assumed conversion of convertible notes
3.6

 
3.6

 
10.9

 
10.9

Numerator for diluted earnings per share -
 
 
 
 
 
 
 
income available to common stockholders
 
 
 
 
 
 
 
after assumed conversion of convertible notes
$
89.5

 
$
106.5

 
$
357.3

 
$
364.0

 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
Denominator for basic earnings per share -
 
 
 
 
 
 
 
weighted-average shares (a)
258,607,162

 
257,098,894

 
258,423,448

 
256,906,821

Effect of dilutive securities - stock based
 
 
 
 
 
 
 
   compensation awards
919,271

 
882,475

 
1,059,216

 
628,018

Effect of dilutive securities - convertible senior notes
35,523,180

 
35,462,900

 
35,506,368

 
35,450,195

Denominator for diluted earnings per share -
 
 
 
 
 
 
 
adjusted weighted-average shares
 
 
 
 
 
 
 
and assumed conversion of convertible notes (a)
295,049,613

 
293,444,269

 
294,989,032

 
292,985,034

Earnings per share: Basic
$
.33

 
$
.40

 
$
1.34

 
$
1.37

Diluted
$
.30

 
$
.36

 
$
1.21

 
$
1.24

 
 
 
 
 
 
 
 
Anti-dilutive common stock equivalents
 
 
 
 
 
 
 
excluded from earning per share computations:
 
 
 
 
 
 
 
Stock based compensation awards
6,714,184

 
7,577,543

 
6,714,184

 
8,301,521

Convertible senior notes

 

 

 

Total
6,714,184

 
7,577,543

 
6,714,184

 
8,301,521

__________

(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 as yet unallocated 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 other common shares.


7



3. Investments:

The Company may classify its 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, 2014 and December 31, 2013, substantially all the Company's invested assets were classified as "available for sale."

Fixed maturity securities and other preferred and common stocks (equity 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 classified as "trading" are also recorded at fair value, however, changes in the fair value of these securities are recognized in earnings as a component of realized investment gains (losses). Fair values for fixed maturity securities and equity securities are based on quoted market prices or estimates using values obtained from independent pricing services as applicable.

The Company reviews the status and fair value changes of each of its available for sale 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 audit opinion, 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 previously reported earnings or financial condition, are recognized as realized losses as soon as credible publicly available information emerges to confirm such developments. Absent issuer-specific circumstances that would result in a contrary conclusion, any equity security with an unrealized investment loss amounting to a 20% or greater decline for a six month period is considered OTTI. 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 realized or 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 in shareholders' equity. The Company recognized no OTTI adjustments for the quarters and nine months ended September 30, 2014 and 2013.

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, 2014:
 
 
 
 
 
 
 
U.S. & Canadian Governments
$
1,056.8

 
$
30.0

 
$
3.7

 
$
1,083.1

Tax-exempt
60.2

 
1.9

 
.2

 
61.9

Corporate
6,863.7

 
299.7

 
21.6

 
7,141.7

 
$
7,980.7

 
$
331.7

 
$
25.7

 
$
8,286.8

December 31, 2013:
 
 
 
 
 
 
 
U.S. & Canadian Governments
$
1,133.0

 
$
36.7

 
$
8.7

 
$
1,161.1

Tax-exempt
168.1

 
3.7

 
.5

 
171.3

Corporate
7,176.0

 
268.1

 
64.3

 
7,379.8

 
$
8,477.3

 
$
308.7

 
$
73.6

 
$
8,712.3


 
Amortized
Cost
 
Estimated
Fair
Value
Fixed Maturity Securities Stratified by Contractual Maturity at September 30, 2014:
 
 
 
Due in one year or less
$
582.6

 
$
589.6

Due after one year through five years
3,559.7

 
3,755.9

Due after five years through ten years
3,638.7

 
3,729.7

Due after ten years
199.6

 
211.4

 
$
7,980.7

 
$
8,286.8



8



A summary of the Company's available for sale equity securities follows:
 

Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
Equity Securities:
 
 
 
 
 
 
 
September 30, 2014
$
1,229.1

 
$
212.4

 
$
4.2

 
$
1,437.3

December 31, 2013
$
632.0

 
$
372.7

 
$
.5

 
$
1,004.2


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:
 
12 Months or Less
 
Greater than 12 Months
 
Total
 
Fair
Value
 
Unrealized Losses
 
Fair
Value
 
Unrealized Losses
 
Fair
Value
 
Unrealized Losses
September 30, 2014:
 
 
 
 
 
 
 
 
 
 
 
Available for Sale:
 
 
 
 
 
 
 
 
 
 
 
Fixed Maturity Securities:
 
 
 
 
 
 
 
 
 
 
 
  U.S. & Canadian Governments
$
87.9

 
$
.3

 
$
132.6

 
$
3.3

 
$
220.6

 
$
3.7

  Tax-exempt
3.2

 

 
6.7

 
.1

 
9.9

 
.2

  Corporate
630.6

 
8.2

 
577.2

 
13.4

 
1,207.8

 
21.6

Subtotal
721.8

 
8.7

 
716.6

 
16.9

 
1,438.5

 
25.7

Equity Securities
177.2

 
4.2

 

 

 
177.2

 
4.2

Total
$
899.1

 
$
12.9

 
$
716.6

 
$
16.9

 
$
1,615.7

 
$
29.9

 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2013:
 
 
 
 
 
 
 
 
 
 
 
Available for Sale:
 
 
 
 
 
 
 
 
 
 
 
Fixed Maturity Securities:
 
 
 
 
 
 
 
 
 
 
 
  U.S. & Canadian Governments
$
301.7

 
$
8.7

 
$

 
$

 
$
301.7

 
$
8.7

  Tax-exempt
10.0

 
.5

 

 

 
10.0

 
.5

  Corporate
2,312.2

 
60.2

 
47.7

 
4.1

 
2,360.0

 
64.3

Subtotal
2,624.0

 
69.4

 
47.7

 
4.1

 
2,671.8

 
73.6

Equity Securities
31.0

 
.5

 

 

 
31.0

 
.5

Total
$
2,655.0

 
$
70.0

 
$
47.7

 
$
4.1

 
$
2,702.8

 
$
74.2


At September 30, 2014, the Company held 314 fixed maturity and 13 equity securities in an unrealized loss position, representing 18.5% as to fixed maturities and 13.7% as to equity securities of the total number of such issues it held. At December 31, 2013, the Company held 558 fixed maturity and 5 equity securities in an unrealized loss position, representing 30.8% as to fixed maturities and 7.2% as to equity securities of the total number of such issues it held. Of the securities in an unrealized loss position, 132 and 10 fixed maturity securities and no equity securities, had been in a continuous unrealized loss position for more than 12 months as of September 30, 2014 and December 31, 2013, respectively. The unrealized losses on these securities are primarily attributable to an increase 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.

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

9



risks and spreads, benchmarking of like securities, broker-dealer quotes, reported trades and sector groupings to determine a reasonable fair value.

Level 1 securities include U.S. and Canadian Treasury notes, publicly traded common stocks, the quoted net asset value ("NAV") mutual funds, and most short-term investments in highly liquid money market instruments. Level 2 securities generally include corporate bonds, municipal bonds, and certain U.S. and Canadian government agency securities. Securities classified within Level 3 include non-publicly traded bonds, short-term investments, 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, 2014 and December 31, 2013.

The following tables show a summary of assets measured at fair value segregated among the various input levels described above:
 
 
Fair Value Measurements
As of September 30, 2014:
 
Level 1
 
Level 2
 
Level 3
 
Total
Available for sale:
 
 
 
 
 
 
 
 
Fixed maturity securities:
 
 
 
 
 
 
 
 
U.S. & Canadian Governments
 
$
448.1

 
$
634.9

 
$

 
$
1,083.1

Tax-exempt
 

 
61.9

 

 
61.9

Corporate
 

 
7,131.2

 
10.5

 
7,141.7

Equity securities
 
1,435.4

 

 
1.8

 
1,437.3

Short-term investments
 
1,007.1

 

 
3.8

 
1,011.0

Trading equity portfolio
 
$
28.2

 
$

 
$

 
$
28.2

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2013:
 
 
 
 
 
 
 
 
Available for sale:
 
 
 
 
 
 
 
 
Fixed maturity securities:
 
 
 
 
 
 
 
 
U.S. & Canadian Governments
 
$
478.9

 
$
682.2

 
$

 
$
1,161.1

Tax-exempt
 

 
171.3

 

 
171.3

Corporate
 

 
7,369.3

 
10.5

 
7,379.8

Equity securities
 
1,003.4

 

 
.7

 
1,004.2

Short-term investments
 
$
1,120.5

 
$

 
$
4.2

 
$
1,124.8


There were no transfers between Levels 1, 2 or 3 during the quarter ended September 30, 2014.

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, write-downs of securities, or changes in the fair value of trading securities, are reflected as revenues in the income statement and are determined on the basis of amortized value at date of sale for fixed maturity securities, and cost in regard to equity securities; such bases apply to the specific securities sold. Unrealized investment gains and losses on available for sale securities, net of any deferred income taxes, are recorded directly as a component of accumulated other comprehensive income in shareholders' equity. At September 30, 2014, the Company and its subsidiaries had no non-income producing fixed maturity 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.

10



 
Quarters Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2014
 
2013
 
2014
 
2013
Investment income from:
 
 
 
 
 
 
 
Fixed maturity securities
$
73.1

 
$
74.1

 
$
222.8

 
$
224.7

Equity securities
12.8

 
5.3

 
31.4

 
13.6

Short-term investments
.1

 
.2

 
.6

 
.8

Other sources
.8

 
.6

 
2.2

 
2.0

Gross investment income
87.0

 
80.3

 
257.1

 
241.2

Investment expenses (a)
.8

 
1.3

 
2.7

 
4.0

Net investment income
$
86.1

 
$
78.9

 
$
254.3

 
$
237.2

 
 
 
 
 
 
 
 
Realized gains (losses) on:
 
 
 
 
 
 
 
Fixed maturity securities:
 
 
 
 
 
 
 
Gains
$
3.7

 
$
4.5

 
$
25.0

 
$
8.5

Losses

 
(8.1
)
 
(.1
)
 
(8.2
)
Net
3.7

 
(3.5
)
 
24.9

 
.2

 
 
 
 
 
 
 
 
Equity securities & other long-term investments:
 
 
 
 
 
 
 
Equity securities:
 
 
 
 
 
 
 
Available for sale
18.6

 
8.4

 
237.7

 
142.5

Trading securities:
 
 
 
 
 
 
 
Sales
1.0

 

 
1.4

 

Changes in fair value
(.8
)
 

 
(1.1
)
 

Other long-term investments
(.9
)
 

 
(.1
)
 
3.7

Total realized gains (losses)
21.5

 
4.8

 
262.8

 
146.6

Income taxes (credits)
7.5

 
1.7

 
91.9

 
51.3

Net realized gains (losses)
$
14.0

 
$
3.1

 
$
170.8

 
$
95.2

 
 
 
 
 
 
 
 
Changes in unrealized investment gains (losses) on:
 
 
 
 
 
 
 
Fixed maturity securities
$
(67.8
)
 
$
(6.7
)
 
$
70.2

 
$
(271.6
)
Less: Deferred income taxes (credits)
(23.6
)
 
(2.3
)
 
24.5

 
(94.7
)
 
(44.1
)
 
(4.4
)
 
45.7

 
(176.8
)
 
 
 
 
 
 
 
 
Equity securities & other long-term investments
(35.2
)
 
27.8

 
(163.2
)
 
29.6

Less: Deferred income taxes (credits)
(12.3
)
 
9.7

 
(57.1
)
 
10.3

 
(22.9
)
 
18.0

 
(106.1
)
 
19.2

Net changes in unrealized investment gains (losses)
$
(67.1
)
 
$
13.6

 
$
(60.3
)
 
$
(157.6
)
__________

(a)
Investment expenses consist of personnel costs and investment management and custody service fees, as well as interest incurred on funds held of $.1 and $.5 for the quarters ended September 30, 2014 and 2013, and $.3 and $1.6 for the nine months ended September 30, 2014 and 2013 respectively.

4. Pension Plans:

Prior to December 31, 2013, the Company had two separate pension plans covering a portion of its work force. The plans were the Old Republic International Salaried Employees Retirement Plan (the Old Republic Plan) and the PMA Capital Corporation Pension Plan (the PMA Plan). Effective December 31, 2013, the PMA Plan was merged into the Old Republic Plan. The PMA plan was frozen as of December 31, 2005. The benefit levels in the Old Republic Plan were similarly frozen as of December 31, 2013. Under the terms of the freeze, the plans remain closed to new participants and eligible employees retain all of the vested rights as of the effective date of the freeze, but additional benefits do not accrue thereafter. Plan assets are comprised principally of bonds, common stocks and short-term investments. Cash contributions of $5.0 and $9.2 were made to the pension plan in the third quarter and first nine months of 2014, respectively, and no additional cash contributions are expected to be made in the remaining portion of calendar year 2014.

5. Information About Segments of Business:

The Company is engaged in the single business of insurance underwriting. It 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 the

11



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 net realized 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.

12



 
Quarters Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2014
 
2013
 
2014
 
2013
General Insurance:
 
 
 
 
 
 
 
Including CCI run-off business:
 
 
 
 
 
 
Net premiums earned
$
713.7

 
$
652.5

 
$
2,056.8

 
$
1,882.0

Net investment income and other income
96.8

 
84.2

 
281.0

 
249.8

Total revenues before realized gains or losses
$
810.6

 
$
736.7

 
$
2,337.8

 
$
2,131.8

Income (loss) before taxes (credits) and
 
 
 
 
 
 
 
realized investment gains or losses (a)
$
48.5

 
$
66.6

 
$
101.5

 
$
198.5

Income tax expense (credits) on above
$
14.2

 
$
18.3

 
$
29.9

 
$
61.5

 
 
 
 
 
 
 
 
All CCI run-off business:
 
 
 
 
 
 
Net premiums earned
$
7.2

 
$
7.5

 
$
21.9

 
$
22.5

Net investment income and other income
.1

 
.1

 
.4

 
.2

Total revenues before realized gains or losses
$
7.3

 
$
7.6

 
$
22.3

 
$
22.8

Income (loss) before taxes (credits) and
 
 
 
 
 
 
 
realized investment gains or losses
$
(12.2
)
 
$
(3.6
)
 
$
(100.9
)
 
$
(10.9
)
Income tax expense (credits) on above
$
(4.2
)
 
$
(1.2
)
 
$
(35.3
)
 
$
(3.8
)
 
 
 
 
 
 
 
 
Total excluding all CCI run-off business:
 
 
 
 
Net premiums earned
$
706.5

 
$
644.9

 
$
2,034.8

 
$
1,859.4

Net investment income and other income
96.7

 
84.1

 
280.5

 
249.5

Total revenues before realized gains or losses
$
803.2

 
$
729.0

 
$
2,315.4

 
$
2,108.9

Income (loss) before taxes (credits) and
 
 
 
 
 
 
 
realized investment gains or losses (a)
$
60.8

 
$
70.2

 
$
202.4

 
$
209.4

Income tax expense (credits) on above
$
18.5

 
$
19.6

 
$
65.2

 
$
65.3

 
 
 
 
 
 
 
 
Title Insurance:
 
 
 
 
 
 
 
Net premiums earned
$
372.9

 
$
428.3

 
$
1,015.1

 
$
1,176.6

Title, escrow and other fees
97.5

 
108.8

 
270.2

 
336.5

Sub-total
470.4

 
537.2

 
1,285.3

 
1,513.1

Net investment income and other income
8.2

 
7.3

 
24.4

 
21.7

Total revenues before realized gains or losses
$
478.7

 
$
544.5

 
$
1,309.8

 
$
1,534.9

Income (loss) before taxes (credits) and
 
 
 
 
 
 
 
realized investment gains or losses (a)
$
28.2

 
$
36.6

 
$
59.0

 
$
98.6

Income tax expense (credits) on above
$
10.0

 
$
12.7

 
$
21.3

 
$
35.0

 
 
 
 
 
 
 
 
RFIG Run-off Business:
 
 
 
 
 
 
 
Excluding CCI run-off business:
 
 
 
 
 
 
Net premiums earned
$
57.6

 
$
68.9

 
$
173.4

 
$
220.5

Net investment income and other income
6.4

 
9.3

 
20.6

 
27.8

Total revenues before realized gains or losses
$
64.0

 
$
78.3

 
$
194.1

 
$
248.4

Income (loss) before taxes (credits) and
 
 
 
 
 
 
 
realized investment gains or losses
$
22.6

 
$
40.7

 
$
96.6

 
$
83.2

Income tax expense (credits) on above
$
7.9

 
$
14.2

 
$
33.8

 
$
29.1

 
 
 
 
 
 
 
 
All CCI run-off business:
 
 
 
 
 
 
 
Net premiums earned
$
7.2

 
$
7.5

 
$
21.9

 
$
22.5

Net investment income and other income
.1

 
.1

 
.4

 
.2

Total revenues before realized gains or losses
$
7.3

 
$
7.6

 
$
22.3

 
$
22.8

Income (loss) before taxes (credits) and
 
 
 
 
 
 
 
realized investment gains or losses
$
(12.2
)
 
$
(3.6
)
 
$
(100.9
)
 
$
(10.9
)
Income tax expense (credits) on above
$
(4.2
)
 
$
(1.2
)
 
$
(35.3
)
 
$
(3.8
)
 
 
 
 
 
 
 
 
Total RFIG run-off MI and CCI business:
 
 
 
 
Net premiums earned
$
64.8

 
$
76.5

 
$
195.4

 
$
243.1

Net investment income and other income
6.5

 
9.4

 
21.1

 
28.1

Total revenues before realized gains or losses
$
71.4

 
$
86.0

 
$
216.5

 
$
271.3

Income (loss) before taxes (credits) and
 
 
 
 
 
 
 
realized investment gains or losses
$
10.4

 
$
37.0

 
$
(4.2
)
 
$
72.2

Income tax expense (credits) on above
$
3.6

 
$
12.9

 
$
(1.4
)
 
$
25.3

 
 
 
 
 
 
 
 

13



 
Quarters Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2014
 
2013
 
2014
 
2013
Consolidated Revenues:
 
 
 
 
 
 
 
Total revenues of above Company segments
$
1,353.4

 
$
1,359.6

 
$
3,841.7

 
$
3,915.1

Other sources (b)
31.1

 
29.5

 
96.7

 
92.8

Consolidated net realized investment gains (losses)
21.5

 
4.8

 
262.8

 
146.6

Consolidation elimination adjustments
(15.1
)
 
(14.6
)
 
(45.7
)
 
(43.5
)
Consolidated revenues
$
1,391.0

 
$
1,379.5

 
$
4,155.6

 
$
4,111.0

 
 
 
 
 
 
 
 
Consolidated Income Before Taxes (Credits):
 
 
 
 
 
 
 
Total income before income taxes (credits)
 
 
 
 
 
 
 
and realized investment gains or losses of
 
 
 
 
 
 
 
above Company segments
$
99.4

 
$
144.0

 
$
257.1

 
$
380.3

Other sources - net (b)
.3

 
.8

 
(1.9
)
 
3.6

Consolidated net realized investment gains (losses)
21.5

 
4.8

 
262.8

 
146.6

Consolidated income before income
 
 
 
 
 
 
 
   taxes (credits)
$
121.4

 
$
149.7

 
$
518.0

 
$
530.6

 
 
 
 
 
 
 
 
Consolidated Income Tax Expense (Credits):
 
 
 
 
 
 
 
Total income tax expense (credits)
 
 
 
 
 
 
 
for above Company segments
$
32.1

 
$
45.4

 
$
85.1

 
$
125.7

Other sources - net (b)
(4.1
)
 
(.2
)
 
(5.5
)
 
.4

Income tax expense (credits) on consolidated
 
 
 
 
 
 
 
net realized investment gains (losses)
7.5

 
1.7

 
91.9

 
51.3

Consolidated income tax expense (credits)
$
35.5

 
$
46.8

 
$
171.6

 
$
177.5



 
September 30,
 
December 31,
 
2014
 
2013
Consolidated Assets: