Edgar Filing: OLD REPUBLIC INTERNATIONAL CORP

ORI 1Q2012 10-Q

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, 2012 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 March 31, 2012
Common Stock / $1 par value		259,452,659

There are 46 pages in this report



OLD REPUBLIC INTERNATIONAL CORPORATION

Report on Form 10-Q / March 31, 2012

INDEX



		PAGE NO.

PART I	FINANCIAL INFORMATION:

	CONSOLIDATED BALANCE SHEETS	3

	CONSOLIDATED STATEMENTS OF INCOME	4

	CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME	4

	CONSOLIDATED STATEMENTS OF CASH FLOWS	5

	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	6 - 15

	MANAGEMENT ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS	16 - 42

	QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK	43

	CONTROLS AND PROCEDURES	43

PART II	OTHER INFORMATION:

	ITEM 1 - LEGAL PROCEEDINGS	44

	ITEM 1A - RISK FACTORS	44

	ITEM 6 - EXHIBITS	44

SIGNATURE		45

EXHIBIT INDEX		46



Old Republic International Corporation and Subsidiaries
Consolidated Balance Sheets
($ in Millions, Except Share Data)
	(Unaudited)
	March 31,			December 31,
	2012			2011
Assets
Investments:
Available for sale:
Fixed maturity securities (at fair value) (amortized cost: $7,901.7 and $7,884.6)	$	8,405.0		$	8,393.2
Equity securities (at fair value) (adjusted cost: $341.4 and $341.9)	642.9			580.8
Short‑term investments (at fair value which approximates cost)	1,435.3			1,476.2
Miscellaneous investments	27.0			35.3
Total	10,510.4			10,485.6
Other investments	10.2			9.8
Total investments	10,520.6			10,495.5

Other Assets:
Cash	117.4			93.0
Securities and indebtedness of related parties	14.8			16.9
Accrued investment income	100.9			96.5
Accounts and notes receivable	1,105.3			1,039.0
Federal income tax recoverable: Current	77.5			73.5
Deferred	99.8			116.7
Prepaid federal income taxes	1.0			1.0
Reinsurance balances and funds held	218.5			210.0
Reinsurance recoverable: Paid losses	133.0			100.7
Policy and claim reserves	3,121.0			3,143.1
Deferred policy acquisition costs	190.1			197.6
Sundry assets	464.4			466.2
Total Other Assets	5,644.2			5,554.9
Total Assets	$	16,164.8		$	16,050.4

Liabilities, Preferred Stock, and Common Shareholders' Equity
Liabilities:
Losses, claims, and settlement expenses	$	8,725.1		$	8,786.6
Unearned premiums	1,332.1			1,268.8
Other policyholders' benefits and funds	285.0			193.1
Total policy liabilities and accruals	10,342.4			10,248.6
Commissions, expenses, fees, and taxes	458.9			457.3
Reinsurance balances and funds	415.9			380.5
Debt	910.1			912.8
Sundry liabilities	264.0			278.4
Commitments and contingent liabilities
Total Liabilities	12,391.5			12,277.8

Preferred Stock (1)	—			—

Common Shareholders' Equity:
Common stock (1)	259.4			259.3
Additional paid‑in capital	659.4			657.9
Retained earnings	2,427.6			2,472.4
Accumulated other comprehensive income (loss)	458.7			416.0
Unallocated ESSOP shares (at cost)	(31.9		)	(33.2		)
Total Common Shareholders' Equity	3,773.3			3,772.5
Total Liabilities, Preferred Stock and Common Shareholders' Equity	$	16,164.8		$	16,050.4

________

(1)

At March 31, 2012 and December 31, 2011, 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 259,452,659 and 259,328,278 were issued as of March 31, 2012 and December 31, 2011, respectively. At March 31, 2012 and December 31, 2011, there were 100,000,000 shares of Class B Common Stock, $1.00 par value, authorized, of which no shares were issued.

See accompanying Notes to Consolidated Financial Statements.



Old Republic International Corporation and Subsidiaries
Consolidated Statements of Income (Unaudited)
($ in Millions, Except Share Data)
	Quarters Ended
	March 31,
	2012			2011
Revenues:
Net premiums earned	$	943.6		$	922.8
Title, escrow, and other fees	93.9			80.1
Total premiums and fees	1,037.5			1,003.0
Net investment income	85.8			91.5
Other income	31.6			28.5
Total operating revenues	1,155.1			1,123.0
Realized investment gains (losses):
From sales	2.9			6.4
From impairments	—			—
Total realized investment gains (losses)	2.9			6.4
Total revenues	1,158.0			1,129.5

Benefits, Claims and Expenses:
Benefits, claims and settlement expenses	613.4			636.6
Dividends to policyholders	3.0			3.5
Underwriting, acquisition, and other expenses	529.2			503.6
Interest and other charges	14.9			10.6
Total expenses	1,160.7			1,154.4
Income (loss) before income taxes (credits)	(2.6		)	(24.9		)

Income Taxes (Credits):
Current	.6			6.2
Deferred	(3.7		)	(18.1		)
Total	(3.1		)	(11.9		)

Net Income (Loss)	$	.4		$	(12.9	)

Net Income (Loss) Per Share:
Basic	$	—		$	(.05	)
Diluted	$	—		$	(.05	)

Average shares outstanding: Basic	255,473,634			254,769,513
Diluted	255,779,449			254,769,513

Dividends Per Common Share:
Cash	$	.1775		$	.1750




Consolidated Statements of Comprehensive Income (Unaudited)

	Quarters Ended
	March 31,
	2012		2011
Net Income (Loss) As Reported	$	.4	$	(12.9	)

Other comprehensive income (loss):
Post-tax net unrealized gains (losses) on securities	37.4		(22.9		)
Net adjustment related to defined benefit plans, net of tax	1.7		1.0
Other adjustments	3.4		4.5
Net adjustments	42.6		(17.3		)

Comprehensive Income (Loss)	$	43.1	$	(30.3	)

See accompanying Notes to Consolidated Financial Statements.



Old Republic International Corporation and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
($ in Millions)
	Quarters Ended
	March 31,
	2012			2011
Cash flows from operating activities:
Net income (loss)	$	.4		$	(12.9	)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Deferred policy acquisition costs	7.8			(4.0		)
Premiums and other receivables	(66.2		)	(28.5		)
Unpaid claims and related items	(13.6		)	(54.5		)
Unearned premiums and other policyholders' liabilities	129.1			19.1
Income taxes	(7.7		)	(13.7		)
Prepaid federal income taxes	—			39.4
Reinsurance balances and funds	(5.8		)	(12.3		)
Realized investment (gains) losses	(2.9		)	(6.4		)
Accounts payable, accrued expenses and other	8.1			22.0
Total	49.0			(52.1		)

Cash flows from investing activities:
Fixed maturity securities:
Maturities and early calls	190.9			302.0
Sales	30.0			123.1
Sales of:
Equity securities	.5			—
Other - net	12.4			13.2
Purchases of:
Fixed maturity securities	(242.3		)	(486.7		)
Equity securities	(.4		)	—
Other - net	(8.2		)	(8.8		)
Net decrease (increase) in short-term investments	41.0			(389.5		)
Other‑net	(.4		)	—
Total	23.4			(446.7		)

Cash flows from financing activities:
Issuance of debentures and notes	—			537.1
Issuance of common shares	.3			.5
Redemption of debentures and notes	(2.6		)	(3.5		)
Dividends on common shares	(45.2		)	(44.5		)
Other‑net	(.5		)	—
Total	(48.2		)	489.6

Increase (decrease) in cash:	24.3			(9.1		)
Cash, beginning of period	93.0			127.3
Cash, end of period	$	117.4		$	118.1

Supplemental cash flow information:
Cash paid (received) during the period for: Interest	$	10.9		$	2.6
Income taxes	$	4.4		$	1.3

See accompanying Notes to Consolidated Financial Statements.

OLD REPUBLIC INTERNATIONAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

($ in Millions, Except Share Data)

1. Accounting Policies and Basis of Presentation:

The accompanying consolidated financial statements have been prepared in conformity with the Financial Accounting Standards Board's ("FASB") Accounting Standards Codification ("ASC") of accounting principles generally accepted in the United States of America ("GAAP"). These interim financial statements should be read in conjunction with these notes and those included in the Company's 2011 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 October 2010, the FASB issued authoritative guidance related to the accounting for costs associated with acquiring or renewing insurance contracts. The guidance identifies those costs relating to the successful acquisition of new or renewal insurance contracts that should be capitalized. This guidance was effective for the Company for the year beginning January 1, 2012 and could be applied prospectively or retrospectively. At year-end 2011, the Company disclosed its expectation to elect retrospective application of the guidance. The Company completed its evaluation of the new guidance during the first quarter 2012 and ultimately elected to adopt the new standard on a prospective basis. The prospective adoption of the guidance resulted in a pretax charge of approximately $10.5 for the first quarter 2012. In addition, the FASB issued guidance requiring additional disclosures over financial instruments disclosed, but not carried, at fair value in the financial statements. The disclosures relative to all these matters are included in the pertinent notes herein.

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 year. Diluted earnings per share are similarly calculated with the inclusion of dilutive common stock equivalents. The following table provides a reconciliation of net income (loss) and number of shares used in basic and diluted earnings per share calculations.



	Quarters Ended
	March 31,
	2012		2011
Numerator:
Net income (loss)	$	.4	$	(12.9	)
Numerator for basic earnings per share -
income (loss) available to common stockholders	.4		(12.9		)
Adjustment for interest expense incurred on
assumed conversions of convertible senior notes	—		—
Numerator for diluted earnings per share -
income (loss) available to common stockholders
after assumed conversions	$	.4	$	(12.9	)

Denominator:
Denominator for basic earnings per share -
weighted-average shares (a)	255,473,634		254,769,513
Effect of dilutive securities - stock based compensation awards	305,815		—
Effect of dilutive securities - convertible senior notes	—		—
Denominator for diluted earnings per share -
adjusted weighted-average shares
and assumed conversions (a)	255,779,449		254,769,513
Earnings per share: Basic	$	—	$	(.05	)
Diluted	$	—	$	(.05	)

Anti-dilutive common stock equivalents
excluded from earning per share computations:
Stock based compensation awards	14,865,927		15,990,258
Convertible senior notes	62,937,281		36,814,753
Total	77,803,208		52,805,011

__________

(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.

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, 2012 and December 31, 2011, substantially all the Company's invested assets were classified as "available for sale."

Fixed maturity securities classified as "available for sale" and other preferred and common stocks (equity securities) are included at fair value with changes in such values, net of deferred income taxes, reflected directly in shareholders' equity. 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 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 ended March 31, 2012 and 2011.

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:
March 31, 2012:
U.S. & Canadian Governments	$	1,088.0	$	69.9	$	.4	$	1,157.6
Tax-exempt	546.9		20.9		—		567.8
Corporate	6,266.6		417.8		4.9		6,679.5
	$	7,901.7	$	508.7	$	5.4	$	8,405.0
December 31, 2011:
U.S. & Canadian Governments	$	1,104.0	$	78.3	$	.1	$	1,182.1
Tax-exempt	597.1		23.4		—		620.5
Corporate	6,183.5		414.1		7.0		6,590.5
	$	7,884.6	$	515.9	$	7.2	$	8,393.2



	Amortized Cost		Estimated Fair Value
Fixed Maturity Securities Stratified by Contractual Maturity at March 31, 2012:
Due in one year or less	$	1,031.2	$	1,049.8
Due after one year through five years	3,293.5		3,492.7
Due after five years through ten years	3,301.8		3,579.0
Due after ten years	275.1		283.4
	$	7,901.7	$	8,405.0

A summary of the Company's equity securities reflecting reported adjusted cost, net of OTTI adjustments totaling $138.5 at March 31, 2012 and December 31, 2011 follows:



	Adjusted Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Equity Securities:
March 31, 2012	$	341.4	$	301.6	$	.1	$	642.9
December 31, 2011	$	341.9	$	243.5	$	4.6	$	580.8

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



	12 Months or Less				Greater than 12 Months				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
March 31, 2012:
Fixed Maturity Securities:
U.S. & Canadian Governments	$	35.4	$	.4	$	—	$	—	$	35.4	$	.4
Tax-exempt	.4		—		—		—		.4		—
Corporate	378.2		4.6		2.9		.2		381.1		4.9
Subtotal	414.0		5.1		2.9		.2		416.9		5.4
Equity Securities	7.9		.1		—		—		7.9		.1
Total	$	421.9	$	5.3	$	2.9	$	.3	$	424.9	$	5.6

December 31, 2011:
Fixed Maturity Securities:
U.S. & Canadian Governments	$	35.5	$	.1	$	—	$	—	$	35.5	$	.1
Tax-exempt	2.1		—		.6		—		2.7		—
Corporate	402.9		6.7		1.7		.2		404.7		7.0
Subtotal	440.6		7.0		2.3		.2		443.0		7.2
Equity Securities	98.4		4.5		—		—		98.5		4.6
Total	$	539.1	$	11.5	$	2.4	$	.3	$	541.5	$	11.9

At March 31, 2012, the Company held 116 fixed maturity and 3 equity securities in an unrealized loss position, representing 6.3% as to fixed maturities and 7.1% as to equity securities of the total number of such issues it held. At December 31, 2011, the Company held 131 fixed maturity and 6 equity securities in an unrealized loss position, representing 7.1% as to fixed maturities and 14.3% as to equity securities of the total number of such issues it held. Of the securities in an unrealized loss position, 5 and 4 fixed maturity securities and 1 and 1 equity securities, had been in a continuous unrealized loss position for more than 12 months as of March 31, 2012 and December 31, 2011, respectively. The unrealized losses on these securities are primarily attributable to a post-purchase rising interest rate environment and/or a decline in the credit quality of some issuers. 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 price that would 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 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, certain U.S. and Canadian government agency securities, and a restricted publicly traded common stock. Securities classified within Level 3 include non-publicly traded bonds, short-term investments, and common stocks. There were no significant changes in the fair value of assets measured with the use of significant unobservable inputs as of March 31, 2012 and December 31, 2011.

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 March 31, 2012:
	Level 1		Level 2		Level 3		Total
Available for sale:
Fixed maturity securities:
U.S. & Canadian Governments	$	392.3	$	765.2	$	—	$	1,157.6
Tax-exempt	—		567.8		—		567.8
Corporate	—		6,649.0		30.5		6,679.5
Equity securities	640.4		—		2.4		642.9
Short-term investments	$	1,430.3	$	—	$	5.0	$	1,435.3

	Fair value measurements as of December 31, 2011:
	Level 1		Level 2		Level 3		Total
Available for sale:
Fixed maturity securities:
U.S. & Canadian Governments	$	389.8	$	792.2	$	—	$	1,182.1
Tax-exempt	—		620.5		—		620.5
Corporate	—		6,560.0		30.5		6,590.5
Equity securities	579.0		—		1.8		580.8
Short-term investments	$	1,471.1	$	—	$	5.0	$	1,476.2

There were no transfers between Levels 1, 2 or 3 during the quarter ended March 31, 2012.

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, 2012, 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 years shown.



	Quarters Ended
	March 31,
	2012			2011
Investment income from:
Fixed maturity securities	$	82.9		$	89.1
Equity securities	2.5			2.4
Short-term investments	.6			.4
Other sources	1.0			1.1
Gross investment income	87.0			93.0
Investment expenses (a)	1.2			1.5
Net investment income	$	85.8		$	91.5

Realized gains (losses) on:
Fixed maturity securities:
Gains	$	1.6		$	7.5
Losses	—			(1.1		)
Net	1.6			6.5

Equity securities & other long-term investments	1.3			—
Total	2.9			6.4
Income taxes (credits)(b)	1.0			2.2
Net realized gains (losses)	$	1.8		$	4.2
Changes in unrealized investment gains (losses) on:
Fixed maturity securities	$	(4.5	)	$	(30.3	)
Less: Deferred income taxes (credits)	(1.6		)	(10.5		)
Net changes in unrealized investment gains (losses)	$	(2.9	)	$	(19.7	)

Equity securities & other long-term investments	$	62.0		$	(5.1	)
Less: Deferred income taxes (credits)	21.6			(1.8		)
Net changes in unrealized investment gains (losses)	$	40.4		$	(3.2	)

__________


(a)	Investment expenses consist of personnel costs and investment management and custody service fees, as well as interest incurred on funds held of $.4 and $.3 for the quarters ended March 31, 2012 and 2011, respectively.


(b)	Reflects primarily the combination of fully taxable realized investment gains or losses and judgments about the recoverability of deferred tax assets.

4. Pension Plans:

As of March 31, 2012, the Company has four pension plans covering a portion of its work force. The four plans are the Old Republic International Salaried Employees Restated Retirement Plan (the Old Republic Plan), the Bituminous Casualty Corporation Retirement Income Plan (the Bituminous Plan), the Old Republic National Title Group Pension Plan (the Title Plan), and the PMA Capital Corporation Pension Plan (the PMA Plan). The plans are defined benefit plans pursuant to which pension payments are based primarily on years of service and employee compensation near retirement. It is the Company's policy to fund the plans' costs as they accrue. With the exception of the PMA Plan, these plans have been closed to new participants since December 31, 2004. The PMA Plan was frozen as of December 31, 2005. Under the terms of the freeze, the plan is closed to new participants and eligible employees retained all of their rights under the plan that they had vested as of December 31, 2005 but do not accrue any additional benefits thereafter. Plan assets are comprised principally of bonds, common stocks and short-term investments. Cash contributions of $9.7 were made to the pension plans in the first quarter of 2012, and additional cash contributions of $19.8 are expected to be made in the remaining portion of calendar year 2012.

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 (property and liability insurance), Mortgage Guaranty and Title Insurance Groups. The results of a small life & health 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 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.



	Quarters Ended
	March 31,
	2012			2011
General Insurance:
Net premiums earned	$	561.0		$	532.3
Net investment income and other income	96.8			93.2
Total revenues before realized gains or losses	$	657.9		$	625.5
Income (loss) before taxes (credits) and
realized investment gains or losses (a)	$	71.0		$	68.5
Income tax expense (credits) on above	$	22.6		$	21.2

Mortgage Guaranty:
Net premiums earned	$	103.2		$	113.9
Net investment income and other income	16.9			17.2
Total revenues before realized gains or losses	$	120.2		$	131.2
Income (loss) before taxes (credits) and
realized investment gains or losses(a)	$	(81.8	)	$	(101.1	)
Income tax expense (credits) on above	$	(28.6	)	$	(35.7	)

Title Insurance:
Net premiums earned	$	261.0		$	252.6
Title, escrow and other fees	93.9			80.1
Sub-total	355.0			332.8
Net investment income and other income	7.2			7.1
Total revenues before realized gains or losses	$	362.2		$	339.9
Income (loss) before taxes (credits) and
realized investment gains or losses (a)	$	9.4		$	2.6
Income tax expense (credits) on above	$	3.3		$	.7

Consolidated Revenues:
Total revenues of above Company segments	$	1,140.4		$	1,096.8
Other sources (b)	37.1			40.4
Consolidated net realized investment gains (losses)	2.9			6.4
Consolidation elimination adjustments	(22.5		)	(14.1		)
Consolidated revenues	$	1,158.0		$	1,129.5

Consolidated Income (Loss) Before Taxes (Credits):
Total income (loss) before income taxes (credits)
and realized investment gains or losses of
above Company segments	$	(1.3	)	$	(30.0	)
Other sources - net (b)	(4.2		)	(1.3		)
Consolidated net realized investment gains (losses)	2.9			6.4
Consolidated income (loss) before income taxes (credits)	$	(2.6	)	$	(24.9	)

Consolidated Income Tax Expense (Credits):
Total income tax expense (credits)
for above Company segments	$	(2.5	)	$	(13.6	)
Other sources - net (b)	(1.6		)	(.6		)
Income tax expense (credits) on
consolidated net realized investment gains (losses)	1.0			2.2
Consolidated income tax expense (credits)	$	(3.1	)	$	(11.9	)



	March 31,			December 31,
	2012			2011
Consolidated Assets:
General	$	12,488.7		$	12,384.3
Mortgage	2,025.2			2,027.6
Title	975.0			956.2
Other assets (b)	976.9			973.4
Consolidation elimination adjustments	(301.1		)	(291.2		)
Consolidated	$	16,164.8		$	16,050.4

__________


(a)	Income (loss) 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 - $6.9 and $5.4 for the quarters ended March 31, 2012 and 2011, respectively; Mortgage - $2.0 and $1.8 and for the quarters ended March 31, 2012 and 2011, respectively; and Title - $2.0 and $1.3 for the quarters ended March 31, 2012 and 2011, respectively.


(b)	Represents amounts for Old Republic's holding company parent, minor corporate services subsidiaries, and a small life and health insurance operation.

General Insurance results for 2012 reflect a pretax charge of approximately $10.5 related to previously deferred acquistion costs ("DAC"). The DAC charge stemmed from new accounting guidance issued by the FASB which became effective as of January 1, 2012.

On January 19, 2012, the North Carolina Department of Insurance ("NCDOI") issued a Summary Order ("Order") placing Republic Mortgage Insurance Company ("RMIC") under supervision. Among other considerations, the Order instructed RMIC to reduce the cash payment on all claims by 50 percent during an initial period not to exceed one year. The remaining 50 percent deferred payment obligation ("DPO") is to be included in RMIC's statutory capital and will be paid at a future date if and when necessary funds are available. As of March 31, 2012, the accumulated DPO balance of $92.7 was recorded as an other policyholders' benefit liability which resulted in a corresponding increase to operating cash flow.

6. 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.

Purported class action lawsuits are pending against the Company's principal title insurance subsidiary, Old Republic National Title Insurance Company ("ORNTIC"), in federal courts in two states - Pennsylvania (Markocki et al. v. ORNTIC, U.S. District Court, Eastern District, Pennsylvania, filed June 8, 2006), and Texas (Ahmad et al. v. ORNTIC, U.S. District Court, Northern District, Texas, Dallas Division, filed February 8, 2008). The plaintiffs allege that ORNTIC failed to give consumers reissue and/or refinance credits on the premiums charged for title insurance covering mortgage refinancing transactions, as required by rate schedules filed by ORNTIC or by state rating bureaus with the state insurance regulatory authorities. The Pennsylvania suit also alleges violations of the federal Real Estate Settlement Procedures Act ("RESPA"). The Court in the Texas suit dismissed similar RESPA allegations. Classes have been certified in both actions, but the 5th Circuit Court of Appeals has granted ORNTIC's motion appealing the Texas class certification.

Beginning in early February 2008, some 80 purported consumer class action lawsuits were filed against the title industry's principal title insurance companies, their subsidiaries and affiliates, and title insurance rating bureaus or associations in at least 10 states. ORNTIC was a named defendant in actions filed in 5 of the states. The suits were substantially identical in alleging that the defendant title insurers engaged in illegal price-fixing agreements to set artificially high premium rates and conspired to create premium rates which the state insurance regulatory authorities could not evaluate and therefore, could not adequately regulate. Most of the suits have since been dismissed, and the dismissals are currently being appealed. Of those remaining, ORNTIC is currently among the named defendants in only one of these actions, in California. The anti-trust allegations in the California action have been dismissed and only the allegations of improper business practices under state law remain. On June 28, 2011, the Federal District Court for the Northern District of California granted a motion to stay the litigation and compel arbitration of individual claims, thus precluding the certification of a class action. The other suits in which ORNTIC was a named defendant have all been dismissed at the trial court level.

National class action suits have been filed against the Company's subsidiary, Old Republic Home Protection ("ORHP"), in the California Superior Court, San Diego, and the U.S. District Court in Birmingham, Alabama. The California suit (Campion v. Old Republic Home Protection) has been filed on behalf of all persons who made a claim under an ORHP home warranty contract from March 6, 2003 to the present. The suit alleges breach of contract, breach of the implicit covenant of good faith and fair dealing, violations of certain California consumer protection laws, and misrepresentation arising out of ORHP's alleged failure to adopt and implement reasonable standards for the prompt investigation and processing of claims under its home warranty contracts. The suit seeks unspecified damages consisting of the rescission of the class members' contracts, restitution of all sums paid by the class members, punitive damages, and declaratory and injunctive relief. ORHP removed the action to the U.S. District Court for the Southern District of California, and on January 6, 2011 the Court denied plaintiff's motion for class certification. The Alabama suit (Barker v. Old Republic Home Protection Company) alleges that ORHP paid fees to real estate brokers to market its home warranty contracts and that the payment of such fees was in violation of Section 8(a) of RESPA. The suit seeks unspecified damages, including treble damages under RESPA. No class has been certified in the Alabama action. Neither action is expected to result in any material liability to the Company.

On December 19, 2008, Old Republic Insurance Company and Old 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 in the Circuit Court, Cook County, Illinois (Old Republic Insurance Company, et al. v. Countrywide Bank FSB, et al.). The suit seeks 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, and a declaratory judgment and money damages based upon material misrepresentations either 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.

On November 3, 2010, Bank of America, N.A. ("B of A") filed suit against Old Republic Insurance Company ("ORIC") in the U.S. District Court for the Western District of North Carolina (Bank of America, N.A. v. Old Republic Insurance Company) alleging breach of contract, breach of the duty of good faith and fair dealing, and bad faith with respect to ORIC's handling of certain claims under a policy of credit indemnity insurance issued to B of A. The policy is not related to those issued to Countrywide, which are the subject of the above-noted separate litigation. The B of A suit seeks a declaratory judgment with respect to the interpretation of certain policy terms, B of A's compliance with certain terms and conditions of the policy, and the propriety of certain positions and procedures taken by ORIC in response to claims filed by B of A. The suit also seeks money damages in excess of $320, pre-and post-judgment interest, and unspecified punitive damages. On January 23, 2012, ORIC filed a counterclaim seeking damages based on B of A's alleged interference with ORIC's subrogation rights.

On December 31, 2009, two of the Company's mortgage insurance subsidiaries, Republic Mortgage Insurance Company and Republic Mortgage Insurance Company of North Carolina (together "RMIC") filed a Complaint for Declaratory Judgment in the Supreme Court of the State of New York, County of New York, against Countrywide Financial Corporation, Countrywide Home Loans, Inc., The Bank of New York Mellon Trust Company, N.A., BAC Home Loans Servicing, LP, and Bank of America N.A. as successor in interest to Countrywide Bank, N.A. (together 'Countrywide") (Republic Mortgage Insurance Company, et al. v. Countrywide Financial Corporation, et al.). The suit relates to five mortgage insurance master policies (the "Policies") issued by RMIC to Countrywide or to the Bank of New York Mellon Trust Company as co-trustee for trusts containing securitized mortgage loans that were originated or purchased by Countrywide. RMIC has rescinded its mortgage insurance coverage on over 1,500 of the loans originally covered under the Policies based upon material misrepresentations of the borrowers in their loan applications or the negligence of Countrywide in its loan underwriting practices or procedures. Each of the coverage rescissions occurred after a borrower had defaulted and RMIC reviewed the claim and loan file submitted by Countrywide. The suit seeks the Court's review and interpretation of the Policies' incontestability provisions and its validation of RMIC's investigation procedures with respect to the claims and underlying loan files.

On January 29, 2010, in response to RMIC's suit, Countrywide served RMIC with a demand for arbitration under the arbitration clauses of the same Policies. The demand raises largely the same issues as those raised in RMIC's suit against Countrywide, but from Countrywide's perspective, as well as Countrywide's and RMIC's compliance with the terms, provisions and conditions of the Policies. The demand includes a prayer for punitive, compensatory and consequential damages. RMIC filed a motion to stay the arbitration, and Countrywide filed a motion to dismiss RMIC's lawsuit and to compel the arbitration. On July 26, 2010, the Court granted Countrywide's motion, ordering the matters be submitted to arbitration and dismissing the lawsuit. The arbitration is proceeding.

After its First Amended Complaint was dismissed on May 4, 2011, on July 19, 2011, J.P. Morgan Chase Bank, N.A. ("Chase") filed a Second Amended Complaint against RMIC in the U.S. District Court for the District of New Jersey arising out of RMIC's rescissions of coverage on approximately 377 mortgage loans. (J.P. Morgan Chase Bank, N.A. v. Republic Mortgage Insurance Company). The new lawsuit abandons the earlier claim, which the Court dismissed, that RMIC could not unilaterally rescind coverage. Instead, Chase alleges that RMIC's rescissions were improper either because the coverage had become incontestable; or the rescissions relied upon evidence that was either improperly obtained or insufficient, unreliable or immaterial; or the rescissions were not permitted by applicable law. Based on these allegations, Chase asserts claims for breach of contract, breach of good faith and fiduciary duties, negligence and violations of Colorado and Louisiana insurance laws and seeks declaratory relief and unspecified compensatory, treble and punitive damages. On September 26, 2011, RMIC filed a motion for entry of an order dismissing various claims in the Second Amended Complaint with prejudice and requiring Chase to provide a more definitive statement of any remaining claims. That motion is awaiting the Court's actions.

On February 18, 2011, the Federal Deposit Insurance Corporation, as receiver of AmTrust Bank, filed a suit against Old Republic Insurance Company ("ORIC") in the U.S. District Court for the Northern District of Ohio arising out of ORIC's termination of a credit indemnity policy issued to insure home equity loans made or held by AmTrust. The suit (Federal Deposit Insurance Corporation v. Old Republic Insurance Company) alleges breach of contract and seeks a declaratory judgment that ORIC's attempted termination and/or cancellation of the policy did not terminate coverage of the insured loans and that ORIC remains obligated to provide coverage for such loans under the policy. The suit seeks damages in excess of $46, declaratory relief, pre-and post-judgment interest, attorneys' fees and costs. The suit was settled on April 27, 2012 in return for a complete termination of the policy in question. The Company's obligations under this settlement were considered during its periodic loss reserving process.

Seven purported class action suits alleging RESPA violations have been filed in the Federal District Courts for the Central District of California, two in the Eastern District of Pennsylvania, two in the Western District of Pennsylvania, and two in the Eastern District of California, between December 9, 2011 and April 6, 2012. The suits target J.P. Morgan Chase Bank, N.A., the PNC Financial Services Group, Inc. as successor to National City Bank, N.A., Citibank, N.A., Wachovia Bank, N.A., HSBC Bank USA, N.A., Bank of America, and Fifth Third Bank, respectively, each of their wholly-owned captive insurance subsidiaries and a number of the mortgage guaranty insurance companies, including RMIC. (Samp, Komarchuk, Whitaker v. J.P. Morgan Chase Bank, N.A., et al.; White, Hightower v. The PNC Financial Services Group, Inc., et al.; Menichino v. Citibank, N.A., et al.; Ranjha v. Wachovia Bank, N.A., et al.; McCarn v. HSBC Bank USA, N.A., et al.; Riddle v. Bank of America, et al.; and Manners v. Fifth Third Bank, et al.) The lawsuits, filed by the same law firms in each case, are 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. Each of the suits seeks unspecified damages, costs, fees and the return of the allegedly improper payments. A class has not been certified in any of the suits, and on March 14, 2012, the suit against Wachovia Bank and the mortgage insurers was voluntarily dismissed without prejudice by the plaintiffs.

On January 27, 2012, a purported national class action suit was filed in the Federal District Court, Northern District of California, Oakland Division by the same plaintiff and the same law firm that filed the suit against ORHP, noted above. This second suit names as defendants the Company and five of its subsidiaries (Campion v. Old Republic International Corporation, Old Republic Home Protection Company, Inc., Old Republic National Title Insurance Company, Mississippi Valley Title Insurance Company, American Guaranty Title Insurance Company, Republic Mortgage Insurance Company). The suit alleges unfair, unlawful and fraudulent business practices in violation of California's Business & Professions Code -- substantially similar to the allegations in plaintiff's suit against ORHP in the Federal District Court for the Southern District of California -- and the payment of commissions and kickbacks in violation of the California Insurance Code and RESPA. The suit seeks declaratory injunctive relief, restitution and treble damages in unspecified amounts, and costs and fees.

Under GAAP, an estimated loss is accrued only if the loss is probable and reasonably estimable. The Company and its subsidiaries have defended and intend to continue defending vigorously against each of the aforementioned actions. The Company does not believe it probable that any of these actions will have a material adverse effect on its consolidated financial position, results of operations, or cash flows, though there can be no assurance in those regards. Nor is the Company able to make a reasonable estimate or range of estimates of any potential liability under these lawsuits, the counterclaim, and the arbitration, all of which seek unquantified damages, attorneys' fees, and expenses. It is also unclear what effect, if any, the run-off operations of RMIC and depletion of its capital will have in the actions against it.

7. Debt:

Consolidated debt of Old Republic and its subsidiaries is summarized below:



	March 31, 2012				December 31, 2011
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
3.75% Convertible Senior Notes due 2018	$	550.0	$	533.5	$	550.0	$	489.5
8.0% Convertible Senior Notes due 2012	316.2		320.7		316.2		320.9
ESSOP debt with an average yield of 3.77%
and 3.73%, respectively	20.8		20.8		23.4		23.4
Junior subordinated debt due 2037 with an average
yield of 8.29%	20.0		20.0		20.0		20.0
Other miscellaneous debt	3.0		3.0		3.1		3.1
Total debt	$	910.1	$	898.2	$	912.8	$	857.0

The Company completed a public offering of $550.0 aggregate principal amount of Convertible Senior Notes in early March, 2011. The notes bear interest at a rate of 3.75% per year, mature on March 15, 2018, and are convertible at any time prior to maturity by the holder into 64.3407 shares (subject to periodic adjustment under certain circumstances) of common stock per one thousand dollar note.

A public offering of $316.25 aggregate principal amount of Convertible Senior Notes became effective in late April, 2009. The notes bear interest at a rate of 8.0% per year, mature on May 15, 2012, and are convertible at any time prior to maturity by the holder into 86.8056 shares (subject to periodic adjustment under certain circumstances) of common stock per one thousand dollar note.

The Company's 3.75% and 8.0% Convertible Senior Notes ("the Notes") contain provisions defining certain events of default, among them a court ordered proceeding due to the insolvency of a Significant Subsidiary. The Notes define Significant Subsidiary in accordance with the paragraph (w) of Rule 1-02 of the SEC's Regulation S-X. The Company's flagship mortgage guaranty insurance carrier, RMIC qualifies as a Significant Subsidiary for purposes of the Notes. If RMIC were to become statutorily impaired, its insolvency could trigger a receivership proceeding which, in turn could ultimately result in an event of default. If this were to occur, the outstanding principal of the Notes could become immediately due and payable.

As previously noted, RMIC is operating under the supervision of the NCDOI pursuant to the Order. Supervision is an administrative proceeding under North Carolina law. It gives the NCDOI more oversight and control with the objective of allowing the insurer to develop a corrective plan subject to the Department's approval. It is unlike receivership which involves rehabilitation or liquidation of a company pursuant to a formal, court-ordered proceeding. Receivership results in a company's assets and management passing to a receiver who is overseen by a court. Moreover, supervision, unlike receivership, does not constitute an event of default by RMIC or its parent holding company with regard to the Notes. Management believes the Order makes RMIC's statutory insolvency less likely. However, the Order could be amended or withdrawn by the NCDOI at any time or allowed to lapse after a year's time. There is therefore no assurance that the Order will preclude RMIC from becoming statutorily impaired at a later date and being placed in receivership by the

NCDOI.

At March 31, 2012, the Company had sufficient liquid resources available to redeem the 8.0% Notes and a substantial portion of the 3.75% Notes. Management is exploring a number of options to address its liquidity needs in the circumstance that an event of default was to occur at a future date. These potential plans include an amendment to the 3.75% Notes removing RMIC from the definition of a Significant Subsidiary, an additional capital raise through issuance of new straight or convertible debt, or the utilization of intra system dividend capacity. While Management is confident that an event of default can be stemmed, there is no assurance that its impact could be addressed through execution of these plans.

Fair Value Measurements - The Company utilizes indicative market prices, which incorporate recent actual market transactions and current bid/ask quotations to estimate the fair value of outstanding debt securities that are classified within Level 2 of the fair value hierarchy as presented below. The Company uses an internally generated interest yield market matrix table, which incorporates maturity, coupon rate, credit quality, structure and current market conditions to estimate the fair value of its outstanding debt securities that are classified within Level 3.

The following table shows a summary of financial liabilities disclosed, but not carried, at fair value, segregated among the various input levels described in Note 3 above:



	Carrying		Fair
	Value		Value		Level 1		Level 2		Level 3
Financial Liabilities:
Debt:
March 31, 2012	$	910.1	$	898.2	$	—	$	854.2	$	43.9
December 31, 2011	$	912.8	$	857.0	$	—	$	810.4	$	46.6

8. Income Taxes:

Tax positions taken or expected to be taken in a tax return by the Company are recognized in the financial statements when it is more likely than not that the position would be sustained upon examination by tax authorities. To the best of management's knowledge, there are no tax uncertainties that are expected to result in significant increases or decreases to unrecognized tax benefits within the next twelve month period. The Company views its income tax exposures as primarily consisting of timing differences whereby the ultimate deductibility of a taxable amount is highly certain but the timing of its deductibility is uncertain. Such differences relate principally to the timing of deductions for loss and premium reserves. As in prior examinations, the Internal Revenue Service ("IRS") could assert that claim reserve deductions were overstated thereby reducing the Company's statutory taxable income in any particular year. The Company believes that it establishes its reserves fairly and consistently at each balance sheet date, and that it would succeed in defending its tax position in these regards. Because of the impact of deferred tax accounting, the possible accelerated payment of tax to the IRS would not necessarily affect the annual effective tax rate. The IRS is currently examining the Company's 2008 consolidated Federal income tax return, along with the Company's amended returns for the years 2005 through 2007 relative to a claim for recovery of taxes previously paid. The Company's consolidated 2006 Federal income tax return has been examined and no significant adjustments have been identified. The Company classifies interest and penalties as income tax expense in the consolidated statement of income.

OLD REPUBLIC INTERNATIONAL CORPORATION

MANAGEMENT ANAYLSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS

Quarters Ended March 31, 2012 and 2011

($ in Millions, Except Share Data)

OVERVIEW

This management analysis of financial position and results of operations pertains to the consolidated accounts of Old Republic International Corporation ("Old Republic" or "the Company"). The Company conducts its operations through three major regulatory segments, namely, its General (property and liability), Mortgage Guaranty, and Title insurance segments. A small life and health insurance business, accounting for 1.7% of consolidated operating revenues for the quarter ended March 31, 2012 and 1.5% of consolidated assets as of that date, is included within the corporate and other caption of this report.

The consolidated accounts are presented 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"). As a publicly held company, Old Republic utilizes GAAP largely to comply with the financial reporting requirements of the Securities and Exchange Commission ("SEC"). From time to time the FASB and the SEC issue various releases most of which require additional financial statement disclosures and provide related application guidance. Of particular relevance to the Company's financial statements are recent disclosure requirements pertaining to uncertainties affecting income tax provisions, methodologies for establishing the fair value of financial instruments and recording of other-than-temporary impairments of securities, possible consolidation of variable interest entities, and composition of plan assets held by the Company's defined benefit plans. More recently, the FASB also issued new guidance relative to the calculation of deferred acquisition costs incurred by insurance entities. The requisite disclosures and explanations for these matters are covered in the pertinent sections of this Management Analysis and/or footnotes to the Company's consolidated financial statements regularly included in its quarterly and annual reports to the SEC on Forms 10-Q and/or 10-K, respectively.

As a state regulated financial institution vested with the public interest, however, business of the Company's insurance subsidiaries is managed pursuant to the laws, regulations, and accounting practices of the various states in the U.S. and those of a small number of other jurisdictions outside the U.S. in which they operate. In comparison with GAAP, the statutory accounting practices reflect greater conservatism and comparability among insurers, and are intended to address the primary financial security interests of policyholders and their beneficiaries. Additionally, these practices also affect a significant number of important factors such as product pricing, risk bearing capacity and capital adequacy, the determination of Federal income taxes payable currently, and the upstreaming of dividends by insurance subsidiaries to the parent holding company. The major differences between these statutory financial accounting practices and GAAP are summarized in Note 1(a) to the consolidated financial statements included in Old Republic's 2011 Annual Report on Form 10-K.

The insurance business is distinguished from most others in that the prices (premiums) charged for various insurance products are set without certainty of the ultimate benefit and claim costs that will emerge or be incurred, often many years after issuance and expiration of a policy. This basic fact casts Old Republic as a risk-taking enterprise managed for the long run. Management therefore conducts the business with a primary focus on achieving favorable underwriting results over cycles, and on the maintenance of financial soundness in support of the insurance subsidiaries' long-term obligations to insurance beneficiaries. To achieve these objectives, adherence to insurance risk management principles is stressed, and asset diversification and quality are emphasized.

In addition to income arising from Old Republic's basic underwriting and related services functions, significant investment income is earned from invested funds generated by those functions and from shareholders' capital. Investment management aims for stability of income from interest and dividends, protection of capital, and sufficient liquidity to meet insurance underwriting and other obligations as they become payable in the future. Securities trading and the realization of capital gains are not objectives. The investment philosophy is therefore best characterized as emphasizing value, credit quality, and relatively long-term holding periods. The Company's ability to hold both fixed maturity and equity securities for long periods of time is in turn enabled by the scheduling of maturities in contemplation of an appropriate matching of assets and liabilities.

In light of the above factors, the Company's affairs are necessarily managed for the long run and without significant regard to the arbitrary strictures of quarterly or even annual reporting periods that American industry must observe. In Old Republic's view, such short reporting time frames do not comport well with the long-term nature of much of its business. Management believes that the Company's operating results and financial condition can best be evaluated by observing underwriting and overall operating performance trends over succeeding five to ten year intervals. Such extended periods can encompass one or two economic and/or underwriting cycles, and thereby provide appropriate time frames for such cycles to run their course and for reserved claim costs to be quantified with greater finality and effect.

This management analysis should be read in conjunction with the consolidated financial statements and the footnotes appended to them.

EXECUTIVE SUMMARY

Consolidated first quarter operating results were at near break-even compared with last year's loss-burdened first and fourth quarters. 2012's first quarter reflected greater earnings contributions by Old Republic's general and title insurance groups, and lower operating losses from the mortgage guaranty line. Consolidated net investment income was down as market yields on investment and re-investment of funds remained at very low levels.

Consolidated Results - The major components of Old Republic's consolidated results and other data for the periods reported upon are shown below.



	Quarters Ended March 31,
	2012			2011
Operating revenues:
General insurance	$	657.9		$	625.5
Mortgage guaranty		120.2			131.2
Title insurance		362.2			339.9
Corporate and other		14.6			26.2
Total	$	1,155.1		$	1,123.0
Pretax operating income (loss):
General insurance	$	71.0		$	68.5
Mortgage guaranty		(81.8	)		(101.1	)
Title insurance		9.4			2.6
Corporate and other		(4.2	)		(1.3	)
Sub-total		(5.6	)		(31.4	)
Realized investment gains (losses):
From sales		2.9			6.4
From impairments		—			—
Net realized investment gains (losses)		2.9			6.4
Consolidated pretax income (loss)		(2.6	)		(24.9	)
Income taxes (credits)		(3.1	)		(11.9	)
Net income (loss)	$	0.4		$	(12.9	)



Consolidated underwriting ratio:
Benefits and claim ratio	59.4	%	63.8	%
Expense ratio	47.6		47.0
Composite ratio	107.0	%	110.8	%



Diluted earnings per share:
Net operating income (loss)	$	(0.01	)	$	(0.07	)
Net realized investment gains (losses)		0.01			0.02
Net income (loss)	$	—		$	(0.05	)

Cash dividends paid per share	$	0.1775		$	0.1750



Components of diluted
earnings per share:
Net operating income (loss):
General insurance	$	0.19		$	0.19
Mortgage guaranty		(0.21	)		(0.26	)
Title insurance		0.02			0.01
Corporate and other		(0.01	)		(0.01	)
Subtotal		(0.01	)		(0.07	)
Net realized investment gains (losses)		0.01			0.02
Net income (loss)	$	—		$	(0.05	)

The recognition of realized investment gains or losses can be highly discretionary and arbitrary due to such factors as the timing of individual securities sales, recognition of estimated losses from write-downs of impaired securities, tax-planning considerations, and changes in investment management judgments relative to the direction of securities markets or the future prospects of individual investees or industry sectors. Likewise, non-recurring items which may emerge from time to time can distort the comparability of the Company's results from period to period. Accordingly, management uses net operating income, a non-GAAP financial measure, to evaluate and better explain operating performance, and believes its use enhances an understanding of Old Republic's basic business results. Operating

income, however, does not replace net income determined in accordance with GAAP as a measure of total profitability.

The preceding tables show both operating and net income or loss to highlight the effects of realized investment gain or loss recognition on period-to-period comparisons. The composition of realized gains or losses follows:



	Quarters Ended
	March 31,
	2012		2011
Realized gains (losses) from sales of
previously impaired securities:
Actual tax basis (loss) on sales	$	—	$	—
Accounting adjustment for impairment
charges taken in prior periods		—		0.4
Net amount included herein		—		0.4
Net realized gains from sales of all other securities		2.9		6.0
Net gain (loss) from actual sales		2.9		6.4
Net realized losses from impairments		—		—
Net realized investment gains (losses) reported herein	$	2.9	$	6.4

General Insurance Results - Operating earnings in the year's first quarter benefited from moderately better underwriting results. Key indicators of quarter-over-quarter performance are shown in this next table:



	General Insurance Group
	Quarters Ended March 31,
	2012		2011		Change
Net premiums earned	$	561.0	$	532.3	5.4	%
Net investment income		66.6		66.4	0.4
Benefits and claim costs		400.2		389.7	2.7
Pretax operating income (loss)	$	71.0	$	68.5	3.6	%



Claim ratio	71.3	%	73.2	%
Expense ratio	26.1		24.9
Composite ratio	97.4	%	98.1	%

Favorable premium trends in workers' compensation and liability insurance lines in Old Republic's construction, trucking, and large account risk management business were most responsible for first quarter 2012 premium growth of 5.4 percent. Key underlying factors in this outcome were the moderate rate improvements obtained in the past fifteen months or so, and the hesitant but nonetheless strengthening pace of U.S. economic activity.

As the above table shows, this year's first quarter composite underwriting ratio of 97.4 percent was in line with the 98.1 percent and 96.9 percent posted in the first quarter and full year 2011, respectively. The latest quarter's results were enhanced by the better performance of the run-off consumer credit indemnity ("CCI") line, but diminished by a charge related to previously deferred policy acquisition costs ("DAC"). CCI underwriting losses impacted the overall composite ratio by 1.7 and 4.1 percentage points in the initial quarters of 2012 and 2011, respectively; for all of 2011 the impact amounted to 2.5 percentage points. The DAC charge stemmed from new accounting guidance issued by the Financial Accounting Standards Board which became effective on January 1, 2012. The prospective adoption of this guidance beginning in this year's first quarter added approximately $10.5 to sales and operating expenses with a consequent increase of 1.9 percentage points in the composite underwriting ratio. The combined effects of CCI results and the DAC adjustment on the above summary table were as follows:



					Year Ended
	Quarters Ended March 31,				December 31,
	2012		2011		2011
Net premiums earned:
As reported	$	561.0	$	532.3	$	2,167.7
Excluding CCI premiums	$	548.9	$	511.4	$	2,109.4



Composite underwriting ratio:
As reported	97.4	%	98.1	%	96.9	%
Excluding CCI results and the DAC adjustment(*)	93.8	%	94.0	%	94.4	%

__________


(*)	The DAC adjustment is expected to affect general insurance operations in varying degrees for each quarterly period of 2012 as premiums are earned.

In mid-March 2012 Old Republic announced that the CCI division would be combined with its mortgage guaranty segment. The combination will most likely be completed in this year's second quarter.

Mortgage Guaranty Results - Operating performance in this year's first quarter reflected lower claim cost ratios when compared with those registered in the same period of 2011 and all of last year. Key indicators of this segment's performance are shown in this next table:



	Mortgage Guaranty Group
	Quarters Ended March 31,
	2012			2011			Change
Net premiums earned	$	103.2		$	113.9		(9.4	)%
Net investment income		10.3			16.6		(37.9	)
Claim costs		179.3			212.7		(15.7	)
Pretax operating income (loss)	$	(81.8	)	$	(101.1	)	19.1	%



Claim ratio	173.6	%	186.7	%
Expense ratio	13.6		15.1
Composite ratio	187.2	%	201.8	%

Mortgage guaranty earned premiums for 2012 continued to decline. The 9.4 percent quarter-over-quarter reduction in the top line was mostly due to the gradual depletion of a book of business in run-off operating mode, and to premium refunds from claim rescission activity. Last year's first quarter earned premiums reflected a decline of 16.4 percent even though the Company was still actively engaged in new business production, albeit at a much reduced level than existed during pre-recessionary years.

Net investment income declined due to a lower invested asset base driven by the aggregate effects of lower premium volume and claim disbursements, together with the low yield environment affecting the investment portfolio.

Claim costs for this year's first quarter were 15.7 percent lower year-over-year as the continued downward trend in newly reported cases, relatively stable cure rates, and lower paid claims, more than offset on-going declines in claim rescission and denial activity. The group's claim ratio improved moderately to 173.6 percent in comparison to 186.7 percent posted in 2011's initial quarter. The following table shows the composition of incurred claim costs:



	Mortgage Guaranty Group
	Quarters Ended
	March 31,
	2012		2011
Components of incurred claim ratio as a
percent of earned premiums:
Paid claims:
Excluding captive and pool transactions	222.5	%	253.0	%
Captive and pool transactions	—		(0.3	)
Paid claim ratio	222.5		252.7
Claim reserve provisions:
Excluding captive and pool transactions	(48.9	)	(66.1	)
Captive and pool transactions	—		0.1
Claim reserve provision ratio	(48.9	)	(66.0	)
Incurred claim ratio: as reported	173.6	%	186.7	%

As reported in earlier periods, the Company's flagship mortgage guaranty insurance carrier, Republic Mortgage Insurance Company ("RMIC"), had been operating pursuant to a waiver of minimum state regulatory capital requirements since late 2009. This waiver expired on August 31, 2011. As a consequence, underwriting of new policies ceased and the existing book of business was placed in run-off operating mode. Afterwards, on January 19, 2012, RMIC received a Summary Order ("Order") from the North Carolina Department of Insurance placing the Company under supervision. Among other considerations, the Order instructed RMIC to reduce the cash payment on all claims by 50 percent during an initial period not to exceed one year. The remaining 50 percent deferred payment obligation ("DPO") is to be included in RMIC's statutory capital and will be paid at a future date if and when necessary funds are available.

The Company utilizes a proprietary standard model to forecast and evaluate the potential long-term performance of its book of business. Of necessity, the model takes into account actual premium and claim experience of prior periods, as well as a large number of assumptions and judgments about future outcomes that are highly sensitive to a wide range of estimates. Many of these relate to matters over which the Company has no control, including: 1) The conflicted interests, as well as the varying mortgage servicing and foreclosure practices of a large number of insured lending institutions; 2) General economic and industry-specific trends and events; and 3) The evolving or future social and

economic policies of the U.S. Government vis-à-vis such critical sectors as the banking, mortgage lending, and housing industries, as well as its policies for resolving the insolvencies and future role of Fannie Mae and Freddie Mac.

These matters notwithstanding, the Company's standard model of forecasted results extending through 2020 continues to reflect ultimate profitability for the book of business. While the establishment of a premium deficiency reserve is therefore unwarranted, the model nonetheless contemplates that results for years 2012-2013 will more likely than not reflect an operating loss far in excess of RMIC's statutory capital balance. As long as the Order remains in place, the claim cost attenuation enabled by the DPO treatment should mitigate or nullify the adverse effect of accentuated claim costs on the statutory capital balance.

As already noted, in March of this year Old Republic announced that it was combining its CCI division with its Mortgage Guaranty ("MI") segment. The two operations offer similar insurance coverages, share the same senior management leadership, and have been operating in run-off mode since 2008 and August 2011, respectively. Concurrent with this action, the Old Republic Mortgage Guaranty Group ("ORMGG") was re-named as the Republic Financial Indemnity Group, Inc. ("RFIG"). RFIG will include a credit indemnity insurer, three existing mortgage insurers, and four related services entities, all of which will be separately held.

The recessionary conditions in U.S. housing finance that first emerged in 2007 have erased the long-term profitability of the MI and CCI insurance coverages and led to substantial losses. As a result, capital funds identified with these lines at year-end 2006 have been fully depleted. While Old Republic maintains a long-term strategic interest in these lines, it has stopped additional capital funding for them since they no longer meet its enterprise risk management disciplines and business diversification objectives. Accordingly, the run-off will devolve within constraints of Old Republic's currently committed capital resources to RFIG. As of March 31, 2012 the total statutory capital, inclusive of accumulated DPO balances of $92.7, for the segment's three mortgage insurance subsidiaries was approximately $165.5. As of the same date, the segment's GAAP capitalization amounted to $160.3, and consisted of long term debt of $180.0 due to the ORI parent company, and a common equity account deficit of ($19.7).

In consideration of all these factors and circumstances, Old Republic's management and board of directors have concluded that a necessary future recapitalization of the combined businesses can best be effected by separating these operations from the ORI holding company. Combining the MI and CCI lines, while maintaining their separateness within RFIG, provides the corporate structure to achieve this objective in the near term.

Title Insurance Results - Old Republic's title insurance business reflected further positive operating momentum during this year's first three months. Key performance indicators are shown below:



	Title Insurance Group
	Quarters Ended March 31,
	2012		2011		Change
Net premiums and fees earned	$	355.0	$	332.8	6.7	%
Net investment income		6.7		6.6	1.7
Claim costs		25.6		26.0	(1.3	)
Pretax operating income (loss)	$	9.4	$	2.6	260.0	%



Claim ratio	7.2	%	7.8	%
Expense ratio	91.5		93.0
Composite ratio	98.7	%	100.8	%

Growth in premiums and fees benefitted from a combination of factors. Key among these have been market share gains emanating from title industry dislocations and consolidation during the past three years or so, and greater levels of refinancing activity in more recent times. The first quarter 2012 claim ratio was lower in relation to 2011 as claim frequency and severity abated somewhat. Year-over-year expense ratio comparisons benefitted from continued rationalization of the expense structure.

Corporate and Other Operations - The combination of a small life and health insurance business and the net costs associated with the parent holding company and its internal services subsidiaries produced losses for both 2012 and 2011 quarterly periods. Variations in the results posted by these relatively minor elements of Old Republic's operations usually stem from volatility inherent to the small scale of the life and health business, fluctuations in the costs of external debt, and net interest expenses on intra-system financing arrangements. The combination of these results is shown in the following table:



	Corporate and Other Operations
	Quarters Ended March 31,
	2012			2011			Change
Life & health premiums earned	$	18.2		$	23.8		(23.5	)%
Net investment income		2.0			1.7		17.2
Other income		(5.7	)		0.6		N/M
Benefits and claim costs		11.3			11.6		(3.3	)
Insurance expenses		8.0			12.6		(36.2	)
Corporate and other expenses-net		(0.4	)		3.2		(115.0	)
Pretax operating income (loss)	$	(4.2	)	$	(1.3	)	(206.9	)%

N/M: Not meaningful

Cash, Invested Assets, and Shareholders' Equity - The table below reflects Old Republic's consolidated cash and invested assets as well as shareholders' equity account at the dates shown:

% Change

March 31,

Dec. 31,

March 31,

March '12/