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EX-32.1 - CEO SECTION 906 CERTIFICATION - OLD REPUBLIC INTERNATIONAL CORPceocertificationex321.htm
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EX-31.2 - CFO SECTION 302 CERTIFICATION - OLD REPUBLIC INTERNATIONAL CORPcfocertificationex312.htm
EX-31.1 - CEO SECTION 302 CERTIFICATION - OLD REPUBLIC INTERNATIONAL CORPceocertificationex311.htm


 
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: March 31, 2017 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
March 31, 2017
Common Stock / $1 par value
 
263,586,666


There are 50 pages in this report





OLD REPUBLIC INTERNATIONAL CORPORATION
 
Report on Form 10-Q / March 31, 2017
 
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 - 46
 
 
 
 
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
47
 
 
 
 
CONTROLS AND PROCEDURES
47
 
 
 
PART II
OTHER INFORMATION:
 
 
 
 
 
ITEM 1 - LEGAL PROCEEDINGS
48
 
 
 
 
ITEM 1A - RISK FACTORS
48
 
 
 
 
ITEM 6 - EXHIBITS
48
 
 
SIGNATURE
49
 
 
EXHIBIT INDEX
50





2



Old Republic International Corporation and Subsidiaries
Consolidated Balance Sheets
($ in Millions, Except Share Data)
 
(Unaudited)
 
 
 
March 31,
 
December 31,
 
2017
 
2016
Assets
 
 
 
Investments:
 
 
 
Available for sale:
 
 
 
Fixed maturity securities (at fair value) (amortized cost: $7,967.4 and $8,019.6)
$
8,135.8

 
$
8,170.9

Equity securities (at fair value) (cost: $2,472.9 and $2,404.9)
3,012.2

 
2,896.1

Short-term investments (at fair value which approximates cost)
654.1

 
681.6

Miscellaneous investments
32.2

 
31.2

Total
11,834.4

 
11,780.0

Held to maturity:
 
 
 
Fixed maturity securities (at amortized cost) (fair value: $1,040.5 and $947.4)
1,056.9

 
974.8

Other investments
2.9

 
2.9

Total investments
12,894.4

 
12,757.7

Other Assets:
 
 
 
Cash
177.2

 
145.7

Securities and indebtedness of related parties
22.7

 
17.6

Accrued investment income
95.9

 
92.3

Accounts and notes receivable
1,461.2

 
1,390.2

Federal income tax recoverable: Current

 
14.9

Prepaid federal income taxes
114.3

 
82.4

Reinsurance balances and funds held
123.6

 
127.7

Reinsurance recoverable: Paid losses
66.1

 
63.4

 Policy and claim reserves
3,214.5

 
3,168.1

Deferred policy acquisition costs
281.8

 
274.0

Sundry assets
453.4

 
457.1

Total Other Assets
6,011.0

 
5,833.8

Total Assets
$
18,905.4

 
$
18,591.6

Liabilities, Preferred Stock, and Common Shareholders' Equity
 
 
 
Liabilities:
 
 
 
Losses, claims, and settlement expenses
$
9,231.3

 
$
9,206.0

Unearned premiums
1,937.1

 
1,842.9

Other policyholders' benefits and funds
193.9

 
192.0

Total policy liabilities and accruals
11,362.4

 
11,241.0

Commissions, expenses, fees, and taxes
470.2

 
474.4

Reinsurance balances and funds
571.3

 
530.3

Federal income tax payable: Current
42.1

 

                                            : Deferred
64.8

 
42.6

Debt
1,525.5

 
1,528.7

Sundry liabilities
272.1

 
302.6

Commitments and contingent liabilities

 

Total Liabilities
14,308.8

 
14,119.9

Preferred Stock (1)

 

Common Shareholders' Equity:
 
 
 
Common stock (1)
263.5

 
262.7

Additional paid-in capital
728.4

 
713.8

Retained earnings
3,274.3

 
3,210.6

Accumulated other comprehensive income
367.8

 
323.6

Unallocated ESSOP shares (at cost)
(37.5
)
 
(39.2
)
Total Common Shareholders' Equity
4,596.6

 
4,471.6

Total Liabilities, Preferred Stock and Common Shareholders' Equity
$
18,905.4

 
$
18,591.6

________

(1)
At March 31, 2017 and December 31, 2016, 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 263,586,666 and 262,719,660 were issued as of March 31, 2017 and December 31, 2016, respectively. At March 31, 2017 and December 31, 2016, 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
 
 
 
March 31,
 
 
 
 
 
2017
 
2016
Revenues:
 
 
 
 
 
 
 
Net premiums earned

 

 
$
1,201.3

 
$
1,150.8

Title, escrow, and other fees

 

 
99.7

 
94.8

Total premiums and fees

 

 
1,301.0

 
1,245.7

Net investment income

 

 
101.2

 
96.3

Other income

 

 
27.6

 
27.3

Total operating revenues

 

 
1,429.9

 
1,369.3

Realized investment gains (losses):
 
 
 
 
 
 
 
From sales

 

 
14.8

 
44.1

From impairments

 

 

 

Total realized investment gains (losses)

 

 
14.8

 
44.1

Total revenues

 

 
1,444.8

 
1,413.5

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

 

 
559.2

 
569.8

Dividends to policyholders

 

 
4.1

 
4.2

Underwriting, acquisition, and other expenses

 

 
700.2

 
646.3

Interest and other charges

 

 
16.4

 
10.7

Total expenses

 

 
1,280.1

 
1,231.1

Income before income taxes (credits)

 

 
164.7

 
182.3

 
 
 
 
 
 
 
 
Income Taxes (Credits):
 
 
 
 
 
 
 
Current

 

 
51.9

 
57.1

Deferred

 

 
(.3
)
 
2.2

Total

 

 
51.6

 
59.3

 
 
 
 
 
 
 
 
Net Income

 

 
$
113.1

 
$
122.9

 
 
 
 
 
 
 
 
Net Income Per Share:
 
 
 
 
 
 
 
Basic

 

 
$
.43

 
$
.48

Diluted

 

 
$
.39

 
$
.43

 
 
 
 
 
 
 
 
Average shares outstanding: Basic

 

 
260,784,905

 
258,657,939

Diluted

 

 
298,239,349

 
295,543,808

 
 
 
 
 
 
 
 
Dividends Per Common Share:
 
 
 
 
 
 
 
Cash

 

 
$
.1900

 
$
.1875



See accompanying Notes to Consolidated Financial Statements.

4



Old Republic International Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income (Unaudited)
($ in Millions)
 
 
 
Quarters Ended
 
 
 
March 31,
 
 
 
 
 
2017
 
2016
Net Income As Reported

 

 
$
113.1

 
$
122.9

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

 

 
80.0

 
312.5

Amounts reclassified as realized investment
 
 
 
 
 
 
 
gains from sales in the statements of income

 

 
(14.8
)
 
(44.1
)
Pretax unrealized gains (losses) on securities

 

 
65.2

 
268.3

Deferred income taxes (credits)

 

 
22.7

 
93.8

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

 

 
42.5

 
174.4

Defined benefit pension plans:
 
 
 
 
 
 
 
Net pension adjustment before reclassifications

 

 

 
.1

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

 

 
.1

 
.1

Net adjustment related to defined benefit
 
 
 
 
 
 
 
pension plans

 

 
.1

 
.2

Deferred income taxes (credits)

 

 

 
.1

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

 

 

 
.1

Foreign currency translation and other adjustments

 

 
1.5

 
6.3

Net adjustments

 

 
44.1

 
180.9

Comprehensive Income (Loss)

 

 
$
157.2

 
$
303.9




See accompanying Notes to Consolidated Financial Statements.

5



Old Republic International Corporation and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
($ in Millions)
 
 
Quarters Ended
 
 
March 31,
 
 
2017
 
2016
Cash flows from operating activities:
 
 
 
 
Net income
 
$
113.1

 
$
122.9

Adjustments to reconcile net income to
 
 
 
 
net cash provided by operating activities:
 
 
 
 
Deferred policy acquisition costs
 
(7.6
)
 
(4.6
)
Premiums and other receivables
 
(70.8
)
 
(61.7
)
Unpaid claims and related items
 
24.4

 
12.6

Unearned premiums and other policyholders' liabilities
 
50.5

 
8.3

Income taxes
 
56.5

 
57.2

Prepaid federal income taxes
 
(31.8
)
 
(19.1
)
Reinsurance balances and funds
 
42.3

 
30.0

Realized investment (gains) losses
 
(14.8
)
 
(44.1
)
Accounts payable, accrued expenses and other
 
(15.6
)
 
24.4

Total
 
146.1

 
125.9

 
 
 
 
 
Cash flows from investing activities:
 
 
 
 
Fixed maturity securities:
 
 
 
 
Available for sale:
 
 
 
 
Maturities and early calls
 
139.8

 
250.6

Sales
 
107.9

 
70.5

Sales of:
 
 
 
 
Equity securities
 
40.3

 
252.7

Other - net
 
6.8

 
4.5

Purchases of:
 
 
 
 
Fixed maturity securities:
 
 
 
 
Available for sale
 
(197.6
)
 
(323.1
)
Held to maturity
 
(87.3
)
 
(157.4
)
Equity securities
 
(95.9
)
 
(233.9
)
Other - net
 
(13.6
)
 
(12.0
)
Net decrease (increase) in short-term investments
 
27.2

 
19.2

Total
 
(72.3
)
 
(128.8
)
 
 
 
 
 
Cash flows from financing activities:
 
 
 
 
Issuance of debentures and notes
 

 
32.4

Issuance of common shares
 
11.1

 
1.8

Redemption of debentures and notes
 
(3.9
)
 
(3.5
)
Dividends on common shares
 
(49.3
)
 
(48.3
)
Other - net
 

 
(2.2
)
Total
 
(42.2
)
 
(19.8
)
 
 
 
 
 
Increase (decrease) in cash
 
31.5

 
(22.7
)
Cash, beginning of period
 
145.7

 
159.8

Cash, end of period
 
$
177.2

 
$
137.1

 
 
 
 
 
Supplemental cash flow information:
 
 
 
 
Cash paid (received) during the period for: Interest
 
$
30.9

 
$
20.1

                                                                         Income taxes
 
$
(5.0
)
 
$
1.8



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 2016 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. In 2016, the Company adopted FASB guidance requiring additional disclosures about short-duration insurance contracts which provide additional information about insurance liabilities including the nature, amount, timing, and uncertainty of future cash flows related to those liabilities. The related interim disclosure requirements outlined in the guidance have been included in the pertinent note herein. Effective January 1, 2017, the company adopted new FASB guidance on accounting for share-based payment award transactions. The Company's adoption of this guidance did not have a material impact on the consolidated financial statements. In May 2014, the FASB issued a comprehensive revenue recognition standard which will be effective in 2018 and applies to all entities that have contracts with customers, except for those that fall within the scope of other standards, such as insurance contracts. In January 2016, the FASB issued guidance on the recognition and measurement of financial instruments which will be effective in 2018. Among other changes, the standard will require equity investments to be measured at fair value with changes in fair value recognized in the consolidated statement of income. 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 of greater than 12 months. Most recently, 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 certain financial instruments and also modifies the impairment model for available for sale debt securities. The Company is currently evaluating the foregoing 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 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 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
 
 
 
March 31,
 
 
 
 
 
2017
 
2016
Numerator:
 
 
 
 
 
 
 
Net income

 

 
$
113.1

 
$
122.9

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

 

 
113.1

 
122.9

Adjustment for interest expense incurred on
 
 
 
 
 
 
 
assumed conversion of convertible notes

 

 
3.6

 
3.6

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

 

 
$
116.7

 
$
126.6

 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
Denominator for basic earnings per share -
 
 
 
 
 
 
 
weighted-average shares (a)

 

 
260,784,905

 
258,657,939

Effect of dilutive securities - stock based
 
 
 
 
 
 
 
   compensation awards

 

 
1,703,231

 
1,230,909

Effect of dilutive securities - convertible senior notes

 

 
35,751,213

 
35,654,960

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

 

 
298,239,349

 
295,543,808

Earnings per share: Basic

 

 
$
.43

 
$
.48

Diluted

 

 
$
.39

 
$
.43

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

 

 

 
3,765,001

Convertible senior notes

 

 

 

Total

 

 

 
3,765,001

__________

(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 other common shares.

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 March 31, 2017 and December 31, 2016, the majority of 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 included at fair value with changes in such values, net of deferred income taxes, reflected directly in shareholders' equity while fixed maturity securities classified as "held to maturity" are carried at amortized cost. 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 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 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. 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 consecutively during 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 ended March 31, 2017 and 2016.

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.

8



 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
Fixed Maturity Securities by Type:
 
 
 
 
 
 
 
March 31, 2017:
 
 
 
 
 
 
 
Available for sale:
 
 
 
 
 
 
 
U.S. & Canadian Governments
$
1,444.5

 
$
12.2

 
$
3.9

 
$
1,452.8

Corporate
6,522.8

 
182.3

 
22.2

 
6,682.9

 
$
7,967.4

 
$
194.5

 
$
26.1

 
$
8,135.8

 
 
 
 
 
 
 
 
Held to maturity:
 
 
 
 
 
 
 
Tax-exempt
$
1,056.9

 
$
3.3

 
$
19.7

 
$
1,040.5

 
 
 
 
 
 
 
 
December 31, 2016:
 
 
 
 
 
 
 
Available for sale:
 
 
 
 
 
 
 
U.S. & Canadian Governments
$
1,419.7

 
$
12.6

 
$
5.5

 
$
1,426.8

Corporate
6,599.8

 
175.0

 
30.7

 
6,744.1

 
$
8,019.6

 
$
187.6

 
$
36.3

 
$
8,170.9

 
 
 
 
 
 
 
 
Held to maturity:
 
 
 
 
 
 
 
Tax-exempt
$
974.8

 
$
.7

 
$
28.0

 
$
947.4


 
Amortized
Cost
 
Estimated
Fair
Value
Fixed Maturity Securities Stratified by Contractual Maturity at March 31, 2017:
 
 
 
Available for sale:
 
 
 
Due in one year or less
$
1,010.3

 
$
1,017.8

Due after one year through five years
3,898.8

 
4,010.9

Due after five years through ten years
2,933.5

 
2,977.1

Due after ten years
124.7

 
129.8

 
$
7,967.4

 
$
8,135.8

 
 
 
 
Held to maturity:
 
 
 
Due in one year or less
$

 
$

Due after one year through five years
41.8

 
41.2

Due after five years through ten years
993.3

 
977.7

Due after ten years
21.7

 
21.6

 
$
1,056.9

 
$
1,040.5


A summary of the Company's equity securities follows:
 

Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
Equity Securities:
 
 
 
 
 
 
 
March 31, 2017
$
2,472.9

 
$
566.8

 
$
27.6

 
$
3,012.2

December 31, 2016
$
2,404.9

 
$
516.2

 
$
25.0

 
$
2,896.1


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 and held to 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
March 31, 2017:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed Maturity Securities:
 
 
 
 
 
 
 
 
 
 
 
  U.S. & Canadian Governments
$
702.7

 
$
3.8

 
$
.9

 
$

 
$
703.6

 
$
3.9

  Tax-exempt
719.8

 
19.7

 

 

 
719.8

 
19.7

  Corporate
1,078.0

 
14.8

 
197.7

 
7.4

 
1,275.8

 
22.2

Subtotal
2,500.6

 
38.4

 
198.7

 
7.4

 
2,699.4

 
45.9

Equity Securities
288.5

 
8.3

 
123.2

 
19.3

 
411.8

 
27.6

Total
$
2,789.1

 
$
46.7

 
$
322.0

 
$
26.7

 
$
3,111.2

 
$
73.5

 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2016:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed Maturity Securities:
 
 
 
 
 
 
 
 
 
 
 
  U.S. & Canadian Governments
$
699.0

 
$
5.5

 
$
1.3

 
$

 
$
700.4

 
$
5.5

  Tax-exempt
814.4

 
28.0

 

 

 
814.4

 
28.0

  Corporate
1,250.5

 
20.3

 
246.2

 
10.3

 
1,496.8

 
30.7

Subtotal
2,764.0

 
53.9

 
247.5

 
10.4

 
3,011.6

 
64.3

Equity Securities
82.6

 
12.5

 
122.1

 
12.4

 
204.8

 
25.0

Total
$
2,846.7

 
$
66.5

 
$
369.7

 
$
22.8

 
$
3,216.5

 
$
89.4


At March 31, 2017, the Company held 660 fixed maturity and 11 equity securities in an unrealized loss position, representing 33.5% (as to fixed maturities) and 10.4% (as to equity securities) of the total number of such issues it held. At December 31, 2016, the Company held 718 fixed maturity and 8 equity securities in an unrealized loss position, representing 37.0% (as to fixed maturities) and 7.7% (as to equity securities) of the total number of such issues it held. Of the securities in an unrealized loss position, 42 and 46 fixed maturity securities and 2 and 2 equity securities, had been in a continuous unrealized loss position for more than 12 months as of March 31, 2017 and December 31, 2016, respectively. The unrealized losses on these securities are primarily deemed to reflect changes in the interest rate environment and changes in fair values of fixed income and equity securities issued by participants in the extractive industries in particular. 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 risks and spreads, benchmarking of like securities, broker-dealer quotes, reported trades and sector groupings to determine a reasonable fair value.

Level 1 securities include U.S. and Canadian Treasury notes, publicly traded common stocks, the quoted net asset value ("NAV") mutual funds, and most short-term investments in highly liquid money market instruments. Level 2 securities generally include corporate bonds, municipal bonds, and certain U.S. and Canadian government agency securities. Securities classified within Level 3 include non-publicly traded bonds and equity securities. There were no significant changes in the fair value of assets measured with the use of significant unobservable inputs as of March 31, 2017 and December 31, 2016.

The following tables show a summary of the fair value of financial assets segregated among the various input levels described above:

10



 
 
Fair Value Measurements
As of March 31, 2017:
 
Level 1
 
Level 2
 
Level 3
 
Total
Available for sale:
 
 
 
 
 
 
 
 
Fixed maturity securities:
 
 
 
 
 
 
 
 
U.S. & Canadian Governments
 
$
774.3

 
$
678.5

 
$

 
$
1,452.8

Corporate
 

 
6,672.4

 
10.5

 
6,682.9

Equity securities
 
3,011.1

 

 
1.0

 
3,012.2

Short-term investments
 
654.1

 

 

 
654.1

Held to maturity:
 
 
 
 
 
 
 
 
Fixed maturity securities:
 
 
 
 
 
 
 
 
Tax-exempt
 
$

 
$
1,040.5

 
$

 
$
1,040.5

 
 
 
 
 
 
 
 
 
As of December 31, 2016:
 
 
 
 
 
 
 
 
Available for sale:
 
 
 
 
 
 
 
 
Fixed maturity securities:
 
 
 
 
 
 
 
 
U.S. & Canadian Governments
 
$
772.1

 
$
654.7

 
$

 
$
1,426.8

Corporate
 

 
6,733.6

 
10.5

 
6,744.1

Equity securities
 
2,895.2

 

 
.9

 
2,896.1

Short-term investments
 
681.6

 

 

 
681.6

Held to maturity:
 
 
 
 
 
 
 
 
Fixed maturity securities:
 
 
 
 
 
 
 
 
Tax-exempt
 
$

 
$
947.4

 
$

 
$
947.4


There were no transfers between Levels 1, 2 or 3 during the quarter ended March 31, 2017.

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 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, net of any deferred income taxes, are recorded directly as a component of accumulated other comprehensive income in shareholders' equity. At March 31, 2017, 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.

11



 
 
 
Quarters Ended
 
 
 
March 31,
 
 
 
 
 
2017
 
2016
Investment income from:
 
 
 
 
 
 
 
Fixed maturity securities

 

 
$
74.2

 
$
75.1

Equity securities

 

 
26.1

 
20.9

Short-term investments

 

 
.8

 
.5

Other sources

 

 
1.2

 
.6

Gross investment income

 

 
102.4

 
97.2

Investment expenses (a)

 

 
1.1

 
.9

Net investment income

 

 
$
101.2

 
$
96.3

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

 

 
$
2.8

 
$
2.4

Losses

 

 
(.1
)
 
(.1
)
Net

 

 
2.6

 
2.2

Equity securities:
 
 
 
 
 
 
 
Gains

 

 
12.1

 
65.6

Losses

 

 

 
(23.8
)
Net

 

 
12.1

 
41.8

Other long-term investments, net

 

 

 

Total realized gains (losses)

 

 
14.8

 
44.1

Income taxes (credits)

 

 
5.1

 
15.4

Net realized gains (losses)

 

 
$
9.6

 
$
28.7

 
 
 
 
 
 
 
 
Changes in unrealized investment gains (losses) on:
 
 
 
 
 
 
 
Fixed maturity securities

 

 
$
17.0

 
$
147.6

Less: Deferred income taxes (credits)

 

 
5.9

 
51.6

 

 

 
11.1

 
96.0

 
 
 
 
 
 
 
 
Equity securities & other long-term investments

 

 
48.1

 
120.6

Less: Deferred income taxes (credits)

 

 
16.7

 
42.2

 

 

 
31.3

 
78.4

Net changes in unrealized investment gains (losses)

 

 
$
42.5

 
$
174.4

__________

(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 $- for the quarters ended March 31, 2017 and 2016, respectively.

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 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 risk 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, developed claim redundancies or deficiencies 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.


12



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 2016 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.
 
Quarters Ended
 
March 31,
 
2017
 
2016
Gross reserves at beginning of period
$
9,206.0

 
$
9,120.2

Less: reinsurance losses recoverable
2,766.1

 
2,732.5

Net reserves at beginning of period:
 
 
 
General Insurance
5,249.9

 
5,053.1

Title Insurance
602.0

 
580.8

RFIG Run-off
574.0

 
736.7

Other
13.8

 
16.9

Sub-total
6,439.8

 
6,387.6

Incurred claims and claim adjustment expenses:
 
 
 
Provisions for insured events of the current year:
 
 
 
General Insurance
513.3

 
518.7

Title Insurance
21.3

 
24.4

RFIG Run-off (a)
32.8

 
40.6

Other
7.0

 
6.0

Sub-total
574.6

 
589.7

Change in provision for insured events of prior years:
 
 
 
General Insurance
10.1

 
1.9

Title Insurance
(10.3
)
 

RFIG Run-off (a)
(13.0
)
 
(20.4
)
Other
(1.8
)
 
(.9
)
Sub-total
(15.1
)
 
(19.4
)
Total incurred claims and claim adjustment expenses (a)
559.5

 
570.3

Payments:
 
 
 
Claims and claim adjustment expenses attributable to
 
 
 
   insured events of the current year:
 
 
 
General Insurance
94.1

 
93.5

Title Insurance
.2

 
.1

RFIG Run-off (b)
.2

 

Other
2.5

 
2.5

Sub-total
97.1

 
96.3

Claims and claim adjustment expenses attributable to
 
 
 
   insured events of prior years:
 
 
 
General Insurance
367.5

 
379.3

Title Insurance
14.7

 
17.4

RFIG Run-off (b)
53.4

 
59.4

Other
2.2

 
4.9

Sub-total
437.8

 
461.1

Total payments (b)
535.0

 
557.5

Amount of reserves for unpaid claims and claim adjustment expenses
 
 
 
at the end of each period, net of reinsurance losses recoverable: (c)
 
 
 
General Insurance
5,311.7

 
5,100.8

Title Insurance
598.1

 
587.6

RFIG Run-off
540.2

 
697.3

Other
14.2

 
14.5

Sub-total
6,464.3

 
6,400.4

Reinsurance losses recoverable
2,766.9

 
2,667.1

Gross reserves at end of period
$
9,231.3

 
$
9,067.5

__________

(a)
In common with all other insurance lines, 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 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.


13



The RFIG Run-off mortgage guaranty provision for insured events of the current year was reduced by estimated coverage rescissions and claims denials of $1.7 and $2.9 for the year-to-date periods ended March 31, 2017 and 2016, 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 $(1.6) and $(.4), 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.

Changes in aggregate claim and loss adjustment expense reserves estimates are shown in the following table:
 
 
 
 
Quarters Ended
 
 
 
 
March 31,
 
 
 
 
2017
 
2016
 
Net reserve increase(decrease):
 
 
 
 
 
 
General Insurance
 
 
$
61.8

 
$
47.7

 
Title Insurance
 
 
(3.9
)
 
6.8

 
RFIG Run-off
 
 
(33.7
)
 
(39.3
)
 
Other
 
 
.3

 
(2.3
)
 
Total
 
 
$
24.4

 
$
12.7


(b)
Rescissions reduced the Company's paid losses by an estimated $(3.0) and $(6.4) for the year-to-date periods ended March 31, 2017 and 2016, respectively.

(c)
Net reserves for claims that have been incurred but are not yet reported ("IBNR") carried in each segment were as follows:
 
 
 
 
 
 
 
 
 
March 31,
 
March 31,
 
December 31,
 
 
2017
 
2016
 
2016
 
General Insurance
$
2,515.3

 
$
2,406.7

 
$
2,431.2

 
Title Insurance
521.5

 
516.5

 
517.5

 
RFIG Run-off
208.6

 
192.1

 
206.3

 
Other
5.0

 
4.8

 
5.4

 
Total
$
3,250.6

 
$
3,120.3

 
$
3,160.5


5. Employee Benefit Plans:

The Company has a pension plan (the Plan) covering a portion of its work force. 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 is closed to new participants and benefits were frozen as of December 31, 2013. As a result, eligible employees retain all of the vested rights as of the effective date of the freeze, while additional benefits no longer accrue. Plan assets are comprised principally of fixed maturity securities, common stocks and short-term investments. No cash contributions were made to the pension plan in the first quarters of 2017 or 2016. Additional cash contributions of $2.8 are expected to be made in the remaining portion of calendar year 2017.

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 the 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.

14



 
 
 
Quarters Ended
 
 
 
March 31,
 
 
 
 
 
2017
 
2016
General Insurance:
 
 
 
 
 
 
 
Net premiums earned

 

 
$
742.8

 
$
718.9

Net investment income and other income

 

 
106.2

 
105.7

Total revenues before realized gains or losses

 

 
$
849.0

 
$
824.6

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

 

 
$
93.7

 
$
87.0

Income tax expense (credits) on above

 

 
$
28.0

 
$
26.8

 
 
 
 
 
 
 
 
Title Insurance:
 
 
 
 
 
 
 
Net premiums earned

 

 
$
418.3

 
$
379.3

Title, escrow and other fees

 

 
99.7

 
94.8

Sub-total

 

 
518.0

 
474.1

Net investment income and other income

 

 
9.7

 
9.4

Total revenues before realized gains or losses

 

 
$
527.8

 
$
483.6

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

 

 
$
40.4

 
$
21.4

Income tax expense (credits) on above

 

 
$
13.8

 
$
7.5

 
 
 
 
 
 
 
 
RFIG Run-off Business:
 
 
 
 
 
 
 
Net premiums earned

 

 
$
35.5

 
$
47.8

Net investment income and other income

 

 
5.5

 
5.9

Total revenues before realized gains or losses

 

 
$
41.1

 
$
53.7

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

 

 
$
14.5

 
$
27.7

Income tax expense (credits) on above

 

 
$
5.2

 
$
9.6

 
 
 
 
 
 
Consolidated Revenues:
 
 
 
 
 
 
 
Total revenues of above Company segments

 

 
$
1,418.0

 
$
1,362.0

Other sources (b)

 

 
41.9

 
28.3

Consolidated net realized investment gains (losses)

 

 
14.8

 
44.1

Consolidation elimination adjustments

 

 
(29.9
)
 
(21.0
)
Consolidated revenues

 

 
$
1,444.8

 
$
1,413.5

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

 

 
$
148.7

 
$
136.2

Other sources - net (b)

 

 
1.1

 
1.9

Consolidated net realized investment gains (losses)

 

 
14.8

 
44.1

Consolidated income before income
 
 
 
 
 
 
 
   taxes (credits)

 

 
$
164.7

 
$
182.3

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

 

 
$
47.1

 
$
44.0

Other sources - net (b)

 

 
(.7
)
 
(.1
)
Income tax expense (credits) on consolidated
 
 
 
 
 
 
 
net realized investment gains (losses)

 

 
5.1

 
15.4

Consolidated income tax expense (credits)

 

 
$
51.6

 
$
59.3



15




 
March 31,
 
December 31,
 
2017
 
2016
Consolidated Assets:
 
 
 
General Insurance
$
15,546.1

 
$
15,305.7

Title Insurance
1,438.9

 
1,423.0

RFIG Run-off Business
887.7

 
904.8

Total assets for the above company segments
17,872.8

 
17,633.6

Other assets (b)
1,353.1

 
1,301.8

Consolidation elimination adjustments
(320.5
)
 
(343.9
)
Consolidated assets
$
18,905.4

 
$
18,591.6

__________

(a)
Income before taxes (credits) is reported net of interest charges on intercompany financing arrangements with Old Republic's holding company parent for the following segments: General - $14.1 and $12.1 for the quarters ended March 31, 2017 and 2016, respectively, and Title - $2.1 for both quarters ended March 31, 2017 and 2016.
(b)
Represents amounts for Old Republic's holding company parent, minor corporate services subsidiaries, and a small life and accident insurance operation.

The material increases in mortgage guaranty insurance claims and loss payments that began in 2007 gradually depleted Republic Mortgage Insurance Company's ("RMIC") statutory capital base and forced it to discontinue writing new business in 2011. The insurance laws of 16 jurisdictions, including RMIC's and its affiliate company, Republic Mortgage Insurance Company of North Carolina's ("RMICNC") domiciliary state of North Carolina, require a mortgage insurer to maintain a minimum amount of statutory capital relative to risk in force (or a similar measure) in order to continue to write new business. The formulations currently allow for a maximum risk-to-capital ratio of 25 to 1, or alternatively stated, a "minimum policyholder position" ("MPP") of one-twenty-fifth of the total risk in force. The failure to maintain the prescribed minimum capital level in a particular state generally requires a mortgage insurer to immediately stop writing new business until it reestablishes the required level of capital or receives a waiver of the requirement from a state's insurance regulatory authority. RMIC breached the minimum capital requirement during the third quarter of 2010. RMIC had previously requested and, subsequently received waivers or forbearance of the minimum policyholder position requirements from the regulatory authorities in substantially all affected states. Following several brief extensions, the waiver from its domiciliary state of North Carolina expired on August 31, 2011, and RMIC and its sister company, RMICNC, discontinued writing new business in all states and limited themselves to servicing the run-off of their existing business. They were placed under administrative supervision by the North Carolina Department of Insurance ("NCDOI") the following year and ultimately ordered to defer the payment of 40% of all settled claims as a deferred payment obligation ("DPO").
 
On July 1, 2014, the NCDOI issued a Final Order approving an Amended and Restated Corrective Plan (the "Amended Plan") submitted jointly on April 16, 2014, by RMIC and RMICNC. Under the Amended Plan, RMIC and RMICNC were authorized to pay 100% of their DPOs accrued as of June 30, 2014 and to settle all subsequent valid claims entirely in cash, without establishing any DPOs. In anticipation of receiving this Final Order, ORI invested $125.0 of cash and securities in RMIC during June 2014. In mid-July 2014, in furtherance of the Final Order, RMIC and RMICNC processed payments of their accumulated DPO balances of approximately $657.0 relating to fully settled claims charged to periods extending between January 19, 2012 and June 30, 2014. Both subsidiaries remain under the supervision of the NCDOI as they continue to operate in run-off mode. The approval of the Amended Plan notwithstanding, the NCDOI retains its regulatory supervisory powers to review and amend the terms of the Amended Plan in the future as circumstances may warrant.

7. Commitments and Contingent Liabilities:

Legal proceedings against the Company and its subsidiaries routinely arise in the normal course of business and usually pertain to claim matters related to insurance policies and contracts issued by its insurance subsidiaries. Other, non-routine legal proceedings which may prove to be material to the Company or a subsidiary are discussed below.

On December 19, 2008, Old Republic Insurance Company and Republic Insured Credit Services, Inc., ("Old Republic") filed suit against Countrywide Bank FSB, Countrywide Home Loans, Inc. ("Countrywide") and Bank of New York Mellon, BNY Mellon Trust of Delaware ("BNYM") in the Circuit Court, Cook County, Illinois (Old Republic Insurance Company, et al. v. Countrywide Bank FSB, et al.) seeking rescission of various credit indemnity policies issued to insure home equity loans and home equity lines of credit which Countrywide had securitized or held for its own account, a declaratory judgment and money damages based upon systemic material misrepresentations and fraud by Countrywide as to the credit characteristics of the loans or by the borrowers in their loan applications. Countrywide filed a counterclaim alleging a breach of contract, bad faith and seeking a declaratory judgment challenging the factual and procedural bases that Old Republic had relied upon to deny or rescind coverage for individual defaulted loans under those policies, as well as unspecified compensatory and punitive damages. The Court ruled that Countrywide does not have standing to counterclaim with respect to the policies insuring the securitized loans because those policies were issued to BNYM. In response, Countrywide and BNYM jointly filed a motion asking the Court to allow an amended counterclaim in which BNYM would raise substantially similar allegations as those raised by Countrywide and make substantially similar requests but with respect to the policies issued to BNYM. The Court dismissed their motion, with leave to re-plead the counterclaim. BNYM's subsequent attempt to re-plead was granted by the Court and BNYM has re-pleaded its counterclaim. Pursuant to a revised case management order, a multi-phase trial is set to begin September 25, 2017.


16



On December 30, 2011 and on January 4, 2013, purported class action suits alleging RESPA violations were filed in the Federal District Court, for the Eastern District of Pennsylvania targeting RMIC, other mortgage guaranty insurance companies, PNC Financial Services Group (as successor to National City Bank) and HSBC Bank USA, N.A., and their wholly-owned captive insurance subsidiaries. (White, Hightower, et al. v. PNC Financial Services Group (as successor to National City Bank) et al.), (Ba, Chip, et al. v. HSBC Bank USA, N.A., et al.). The lawsuits are two of twelve against various lenders, their captive reinsurers and the mortgage insurers, filed by the same law firms. All of these lawsuits were substantially identical in alleging that the mortgage guaranty insurers had reinsurance arrangements with the defendant banks' captive insurance subsidiaries under which payments were made in violation of the anti-kickback and fee splitting prohibitions of Sections 8(a) and 8(b) of RESPA. Ten of the twelve suits have been dismissed. A class has not been certified in either remaining suit. Those two remaining suits seeking unspecified damages, costs, fees and the return of the allegedly improper payments were settled with an agreement to make nominal payments. Ba has been dismissed with prejudice and White is awaiting the Court's dismissal.

On October 9, 2014, Intellectual Ventures I LLC and Intellectual Ventures II LLC (collectively, "IV") served a complaint naming as defendants Old Republic National Title Insurance Company, Old Republic Title Insurance Group, Inc., Old Republic Insurance Company and Old Republic General Insurance Group, Inc. (collectively, "Old Republic")(