Edgar Filing: OLD REPUBLIC INTERNATIONAL CORP

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q



[x]	Quarterly report pursuant to section 13 or 15(d) of the Security Exchange Act of 1934
	for the quarterly period ended: March 31, 2018 or

[ ]	Transition report pursuant to section 13 or 15(d) of the Security Exchange Act of 1934



Commission File Number:	001-10607

OLD REPUBLIC INTERNATIONAL CORPORATION

(Exact name of registrant as specified in its charter)



Delaware		No. 36-2678171
(State or other jurisdiction of		(IRS Employer Identification No.)
incorporation or organization)



307 North Michigan Avenue, Chicago, Illinois		60601
(Address of principal executive office)		(Zip Code)

Registrant's telephone number, including area code: 312-346-8100

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes: x No: o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes: x No: o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer", "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer x	Accelerated filer o

Non-accelerated filer o (Do not check if a smaller reporting company)

	Smaller reporting company o

	Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).Yes: o No: x



Class		Shares Outstanding March 31, 2018
Common Stock / $1 par value		302,185,787

There are 51 pages in this report



OLD REPUBLIC INTERNATIONAL CORPORATION

Report on Form 10-Q / March 31, 2018

INDEX



		PAGE NO.

PART I	FINANCIAL INFORMATION:

	CONSOLIDATED BALANCE SHEETS	3

	CONSOLIDATED STATEMENTS OF INCOME	4

	CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME	5

	CONSOLIDATED STATEMENTS OF CASH FLOWS	6

	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	7 - 17

	MANAGEMENT ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS	18 - 47

	QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK	48

	CONTROLS AND PROCEDURES	48

PART II	OTHER INFORMATION:

	ITEM 1 - LEGAL PROCEEDINGS	49

	ITEM 1A - RISK FACTORS	49

	ITEM 6 - EXHIBITS	49

SIGNATURE		50

EXHIBIT INDEX		51



Old Republic International Corporation and Subsidiaries
Consolidated Balance Sheets
($ in Millions, Except Share Data)
	(Unaudited)
	March 31,			December 31,
	2018			2017
Assets
Investments:
Available for sale:
Fixed maturity securities (at fair value) (amortized cost: $8,136.8 and $8,162.2)	$	8,107.8		$	8,282.3
Short-term investments (at fair value which approximates cost)	474.9			670.1
Miscellaneous investments	30.0			29.1
Total	8,612.9			8,981.6
Held to maturity:
Fixed maturity securities (at amortized cost) (fair value: $1,038.0 and $1,069.2)	1,061.8			1,067.4
Equity securities (at fair value) (cost: $2,666.1 and $2,629.9)	3,149.7			3,265.5
Other investments	3.6			3.3
Total investments	12,828.2			13,318.0
Other Assets:
Cash	103.4			125.9
Securities and indebtedness of related parties	22.4			12.8
Accrued investment income	94.3			92.4
Accounts and notes receivable	1,516.1			1,469.7
Prepaid federal income taxes	114.3			114.3
Reinsurance balances and funds held	148.8			141.6
Reinsurance recoverable: Paid losses	70.9			60.5
Policy and claim reserves	3,330.9			3,311.3
Deferred policy acquisition costs	304.2			297.8
Sundry assets	464.7			458.8
Total Other Assets	6,170.6			6,085.5
Total Assets	$	18,998.8		$	19,403.5
Liabilities, Preferred Stock, and Common Shareholders' Equity
Liabilities:
Losses, claims, and settlement expenses	$	9,272.4		$	9,237.6
Unearned premiums	2,060.9			1,971.5
Other policyholders' benefits and funds	206.5			204.7
Total policy liabilities and accruals	11,540.0			11,413.9
Commissions, expenses, fees, and taxes	504.2			547.7
Reinsurance balances and funds	605.0			566.9
Federal income tax payable: Current	27.2			6.5
Deferred	33.4			100.5
Debt	974.1			1,448.7
Sundry liabilities	265.9			585.8
Commitments and contingent liabilities
Total Liabilities	13,950.2			14,670.2
Preferred Stock (1)	—			—
Common Shareholders' Equity:
Common stock (1)	302.1			269.2
Additional paid-in capital	1,267.9			815.2
Retained earnings	3,658.1			3,206.9
Accumulated other comprehensive income (loss)	(148.9		)	474.2
Unallocated ESSOP shares (at cost)	(30.6		)	(32.4		)
Total Common Shareholders' Equity	5,048.6			4,733.3
Total Liabilities, Preferred Stock and Common Shareholders' Equity	$	18,998.8		$	19,403.5

________

(1)

At March 31, 2018 and December 31, 2017, there were 75,000,000 shares of $0.01 par value preferred stock authorized, of which no shares were outstanding. As of the same dates, there were 500,000,000 shares of common stock, $1.00 par value, authorized, of which 302,185,787 and 269,238,727 were issued as of March 31, 2018 and December 31, 2017, respectively. At March 31, 2018 and December 31, 2017, there were 100,000,000 shares of Class B Common Stock, $1.00 par value, authorized, of which no shares were issued.

See accompanying Notes to Consolidated Financial Statements.



Old Republic International Corporation and Subsidiaries
Consolidated Statements of Income (Unaudited)
($ in Millions, Except Share Data)
	Quarters Ended
	March 31,
	2018			2017
Revenues:
Net premiums earned	$	1,231.0		$	1,201.3
Title, escrow, and other fees	99.3			99.7
Total premiums and fees	1,330.4			1,301.0
Net investment income	105.8			101.2
Other income	30.6			27.6
Total operating revenues	1,466.8			1,429.9
Investment gains (losses):
Realized from actual transactions	15.5			14.8
Unrealized from change in fair value of
equity securities	(152.0		)	—
Impairments	—			—
Total realized and unrealized investment
gains (losses)	(136.4		)	14.8
Total revenues	1,330.4			1,444.8

Benefits, Claims and Expenses:
Benefits, claims and settlement expenses	590.1			559.2
Dividends to policyholders	3.8			4.1
Underwriting, acquisition, and other expenses	728.0			700.2
Interest and other charges	14.4			16.4
Total expenses	1,336.4			1,280.1
Income (loss) before income taxes (credits)	(6.0		)	164.7

Income Taxes (Credits):
Current	26.0			51.9
Deferred	(36.1		)	(.3		)
Total	(10.1		)	51.6

Net Income	$	4.0		$	113.1

Net Income Per Share:
Basic	$	.01		$	.43
Diluted	$	.01		$	.39

Average shares outstanding: Basic	278,116,902			260,784,905
Diluted	279,528,034			298,239,349

Dividends Per Common Share:
Cash	$	.1950		$	.1900

See accompanying Notes to Consolidated Financial Statements.



Old Republic International Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income (Unaudited)
($ in Millions)
	Quarters Ended
	March 31,
	2018			2017
Net Income As Reported	$	4.0		$	113.1

Other comprehensive income (loss):
Unrealized gains (losses) on securities:
Unrealized gains (losses) on securities before
reclassifications	(148.6		)	80.0
Amounts reclassified as investment gains
from sales in the statements of income	(.5		)	(14.8		)
Pretax unrealized gains (losses) on securities	(149.2		)	65.2
Deferred income taxes (credits)	(31.3		)	22.7
Net unrealized gains (losses) on securities, net of tax	(117.8		)	42.5
Defined benefit pension plans:
Net pension adjustment before reclassifications	—			—
Amounts reclassified as underwriting, acquisition,
and other expenses in the statements of income	.8			.1
Net adjustment related to defined benefit
pension plans	.8			.1
Deferred income taxes (credits)	.1			—
Net adjustment related to defined benefit pension
plans, net of tax	.6			—
Foreign currency translation and other adjustments	(3.7		)	1.5
Net adjustments	(120.9		)	44.1
Comprehensive Income (Loss)	$	(116.8	)	$	157.2

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,
	2018			2017
Cash flows from operating activities:
Net income	$	4.0		$	113.1
Adjustments to reconcile net income to
net cash provided by operating activities:
Deferred policy acquisition costs	(6.4		)	(7.6		)
Premiums and other receivables	(46.4		)	(70.8		)
Unpaid claims and related items	65.1			24.4
Unearned premiums and other policyholders' liabilities	41.1			50.5
Income taxes	(15.0		)	56.5
Prepaid federal income taxes	—			(31.8		)
Reinsurance balances and funds	20.5			42.3
Realized investment (gains) losses from actual sale transactions	(15.5		)	(14.8		)
Unrealized investment (gains) losses from changes in fair value
of equity securities	152.0			—
Accounts payable, accrued expenses and other	(68.7		)	(15.6		)
Total	130.8			146.1

Cash flows from investing activities:
Fixed maturity securities:
Available for sale:
Maturities and early calls	196.8			139.8
Sales	144.0			107.9
Sales of:
Equity securities	81.2			40.3
Other - net	4.7			6.8
Purchases of:
Fixed maturity securities:
Available for sale	(324.9		)	(197.6		)
Held to maturity	—			(87.3		)
Equity securities	(103.1		)	(95.9		)
Other - net	(13.5		)	(13.6		)
Net decrease (increase) in short-term investments	195.1			27.2
Other - net	(1.5		)	—
Total	178.9			(72.3		)

Cash flows from financing activities:
Issuance of common shares	6.2			11.1
Redemption of debentures and notes	(4.7		)	(3.9		)
Dividends on common shares	(324.1		)	(49.3		)
Other - net	(9.5		)	—
Total	(332.2		)	(42.2		)

Increase (decrease) in cash	(22.5		)	31.5
Cash, beginning of period	125.9			145.7
Cash, end of period	$	103.4		$	177.2

Supplemental cash flow information:
Cash paid (received) during the period for: Interest	$	29.5		$	30.9
Income taxes	$	5.2		$	(5.0	)

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 2017 Annual Report on Form 10-K incorporated herein by reference.

Pertinent accounting and disclosure pronouncements issued from time to time by the FASB are adopted by the Company as they become effective and are further discussed below.

Effective January 1, 2018, the Company adopted FASB guidance on the recognition and measurement of financial instruments. The impact of the Company’s adoption of this pronouncement and the related interim disclosure requirements have been included in the pertinent note herein.

In addition, effective January 1, 2018, the Company adopted the FASB's comprehensive revenue recognition standard which applies to all entities that have contracts with customers, except for those that fall within the scope of other standards, such as insurance contracts. The Company’s adoption of this standard did not have an effect on its insurance contract revenues and based on its evaluation of certain less significant revenue streams generated from contracts with customers, does not have a material impact on the consolidated financial statements.

The Company recognized total contract revenue from customers of $40.7 and $37.7 for the period ended March 31, 2018 and 2017, respectively. Of these amounts, approximately $26.7 (65.6%) and $24.2 (64.2%) were generated from claims handling and related ancillary services (i.e. risk control services) provided to customers within the Company’s General Insurance segment. Claims handling revenues are recognized on a straight-line basis over the contract period (generally one year) which is commensurate with the entity’s efforts relative to claims adjudication. The related ancillary services revenues are recognized as services are provided and invoiced to the customer. Additionally, revenues from contracts with customers generated from the Company’s Title Insurance segment, consisting primarily of valuation and default title services, and software licensing arrangements totaled $12.9 (31.7%) and $12.5 (33.2%) for the period ended March 31, 2018 and 2017, respectively. Such revenues are generally recognized at a point in time upon completion and invoicing of the services, or in the case of software maintenance agreements, on a straight-line basis over the life of the contract (generally one year).

Furthermore, 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 February 2016, the FASB issued guidance on lease accounting which will be effective in 2019 and requires balance sheet recognition of all leases with a term greater than 12 months.

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 including reinsurance recoverables, held to maturity securities, and accounts and notes receivable. The guidance also modifies the impairment model for available for sale fixed maturities securities.

The Company is currently evaluating the foregoing lease and credit loss 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.



	Quarters Ended
	March 31,
	2018		2017
Numerator:
Net income	$	4.0	$	113.1
Numerator for basic earnings per share -
income available to common stockholders	4.0		113.1
Adjustment for interest expense incurred on
assumed conversion of convertible notes	—		3.6
Numerator for diluted earnings per share -
income available to common stockholders
after assumed conversion of convertible notes	$	4.0	$	116.7

Denominator:
Denominator for basic earnings per share -
weighted-average shares (a)	278,116,902		260,784,905
Effect of dilutive securities - stock based
compensation awards	1,411,132		1,703,231
Effect of dilutive securities - convertible senior notes	—		35,751,213
Denominator for diluted earnings per share -
adjusted weighted-average shares
and assumed conversion of convertible notes (a)	279,528,034		298,239,349
Earnings per share: Basic	$	.01	$	.43
Diluted	$	.01	$	.39

Anti-dilutive common stock equivalents
excluded from earnings per share computations:
Stock based compensation awards	1,539,500		—
Convertible senior notes	21,773,776		—
Total	23,313,276		—

__________

(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 fixed maturity invested assets in terms of those assets relative to which it either (1) has the positive intent and ability to hold until maturity, (2) has available for sale or (3) has the intention of trading. As of March 31, 2018 and December 31, 2017, the majority of the Company's fixed maturity invested assets were classified as "available for sale."

Fixed maturity securities classified as "available for sale" are included at fair value with changes in such values, net of deferred income taxes, reflected directly in shareholders' equity while fixed maturity securities classified as "held to maturity" are carried at amortized cost. Effective January 1, 2018, preferred and common stocks (equity securities) are included at fair value with changes in such values reflected as investment gains (losses) in the consolidated statements of income. Fair values for fixed maturity securities and equity securities are based on quoted market prices or estimates using values obtained from independent pricing services as applicable.

The Company reviews the status and fair value changes of each of its fixed maturity investments on at least a quarterly basis during the year, and estimates of other-than-temporary impairments ("OTTI") in the portfolio's value are evaluated and established at each quarterly balance sheet date. In reviewing investments for OTTI, the Company, in addition to a security's market price history, considers the totality of such factors as the issuer's operating results, financial condition and liquidity, its ability to access capital markets, credit rating trends, most current 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. In the event the Company's estimate of OTTI is insufficient at any point in time, future periods' net income (loss) would be adversely affected by the recognition of additional impairment losses, but its financial position would not necessarily be affected adversely inasmuch as such losses, or a portion of them, could have been recognized previously as unrealized losses in shareholders' equity. The Company recognized no OTTI adjustments for the quarters ended March 31, 2018 and 2017.

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, 2018:
Available for sale:
U.S. & Canadian Governments	$	1,455.2	$	2.8	$	22.4	$	1,435.6
Corporate	6,681.6		66.7		76.1		6,672.1
	$	8,136.8	$	69.6	$	98.6	$	8,107.8

Held to maturity:
Tax-exempt	$	1,061.8	$	.8	$	24.6	$	1,038.0

December 31, 2017:
Available for sale:
U.S. & Canadian Governments	$	1,554.3	$	6.5	$	8.7	$	1,552.2
Corporate	6,607.8		140.8		18.6		6,730.0
	$	8,162.2	$	147.4	$	27.3	$	8,282.3

Held to maturity:
Tax-exempt	$	1,067.4	$	10.0	$	8.3	$	1,069.2



	Amortized Cost		Estimated Fair Value
Fixed Maturity Securities Stratified by Contractual Maturity at March 31, 2018:
Available for sale:
Due in one year or less	$	737.6	$	741.1
Due after one year through five years	4,296.1		4,295.3
Due after five years through ten years	3,000.9		2,963.8
Due after ten years	102.0		107.5
	$	8,136.8	$	8,107.8

Held to maturity:
Due in one year or less	$	—	$	—
Due after one year through five years	93.1		91.1
Due after five years through ten years	960.5		938.7
Due after ten years	8.1		8.1
	$	1,061.8	$	1,038.0

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:



	12 Months or Less				Greater than 12 Months				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
March 31, 2018:

Fixed Maturity Securities:
U.S. & Canadian Governments	$	761.3	$	13.4	$	382.8	$	8.9	$	1,144.1	$	22.4
Tax-exempt	507.8		7.1		404.3		17.4		912.2		24.6
Corporate	2,992.9		53.5		664.0		22.6		3,657.0		76.1
Total	$	4,262.2	$	74.1	$	1,451.2	$	49.1	$	5,713.5	$	123.2

December 31, 2017:

Fixed Maturity Securities:
U.S. & Canadian Governments	$	1,080.9	$	8.6	$	29.5	$	—	$	1,110.5	$	8.7
Tax-exempt	321.9		4.8		134.7		3.4		456.6		8.3
Corporate	1,660.9		15.0		145.9		3.6		1,806.9		18.6
Subtotal	3,063.9		28.5		310.2		7.2		3,374.1		35.7
Equity Securities	354.0		23.2		—		—		354.0		23.2
Total	$	3,417.9	$	51.7	$	310.2	$	7.2	$	3,728.2	$	58.9

At March 31, 2018, the Company held 1,296 fixed maturity securities in an unrealized loss position, representing 65.9% of the total number of such issues it held. At December 31, 2017, the Company held 742 fixed maturity and 9 equity securities in an unrealized loss position, representing 37.6% (as to fixed maturities) and 9.5% (as to equity securities) of the total number of such issues it held. Of the securities in an unrealized loss position, 353 and 104 fixed maturity securities had been in a continuous unrealized loss position for more than 12 months as of March 31, 2018 and December 31, 2017, respectively. The unrealized losses on these fixed income securities are primarily deemed to reflect changes in the interest rate environment. As part of its assessment of other-than-temporary impairments, the Company considers its intent to continue to hold, and the likelihood that it will not be required to sell investment securities in an unrealized loss position until cost recovery, principally on the basis of its asset and liability maturity matching procedures.

A summary of the Company's equity securities follows:



	Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Equity Securities:
March 31, 2018	$	2,666.1	$	526.6	$	42.9	$	3,149.7
December 31, 2017	$	2,629.9	$	658.8	$	23.2	$	3,265.5

Effective January 1, 2018, the Company adopted a new accounting standard which requires the recognition of changes in fair value of equity securities in net income. The cumulative-effect adjustment resulting from the adoption of the new standard was to reclassify $502.1 from accumulated other comprehensive income to retained earnings; total shareholders' equity remained unchanged. During the first quarter 2018, the Company recognized unrealized investment losses of $152.0 emanating from changes in the fair value of equity securities in the consolidated statements of income. Of this amount, $131.3 was related to changes in the fair value of equity securities still held at March 31, 2018.

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, 2018 and December 31, 2017.

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



	Fair Value Measurements
As of March 31, 2018:	Level 1		Level 2		Level 3		Total
Available for sale:
Fixed maturity securities:
U.S. & Canadian Governments	$	645.7	$	789.9	$	—	$	1,435.6
Corporate	—		6,661.6		10.5		6,672.1
Short-term investments	474.9		—		—		474.9
Held to maturity:
Fixed maturity securities:
Tax-exempt	—		1,038.0		—		1,038.0
Equity securities	$	3,148.6	$	—	$	1.1	$	3,149.7

As of December 31, 2017:
Available for sale:
Fixed maturity securities:
U.S. & Canadian Governments	$	761.4	$	790.8	$	—	$	1,552.2
Corporate	—		6,719.5		10.5		6,730.0
Short-term investments	670.1		—		—		670.1
Held to maturity:
Fixed maturity securities:
Tax-exempt	—		1,069.2		—		1,069.2
Equity securities	$	3,264.4	$	—	$	1.1	$	3,265.5

There were no transfers between Levels 1, 2 or 3 during the quarter ended March 31, 2018.

Investment income is reported net of allocated expenses and includes appropriate adjustments for amortization of premium and accretion of discount on fixed maturity securities acquired at other than par value. Dividends on equity securities are credited to income on the ex-dividend date.

Realized investment gains and losses, which result from sales or write-downs of securities are reflected as revenues in the income statement and are determined on the basis of amortized value at date of sale for fixed maturity securities, and cost in regard to equity securities; such bases apply to the specific securities sold. Also, effective January 1, 2018, unrealized gains and (losses) from changes in fair value of equity securities are recorded as investment gains (losses) in the income statement. Unrealized investment gains and losses on fixed maturity securities, net of any deferred income taxes, are recorded directly as a component of accumulated other comprehensive income in shareholders' equity. At March 31, 2018, 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.



	Quarters Ended
	March 31,
	2018			2017
Investment income from:
Fixed maturity securities	$	74.2		$	74.2
Equity securities	30.4			26.1
Short-term investments	1.9			.8
Other sources	.9			1.2
Gross investment income	107.5			102.4
Investment expenses (a)	1.7			1.1
Net investment income	$	105.8		$	101.2

Investment gains (losses):
From actual sale transactions:
Fixed maturity securities:
Gains	$	.4		$	2.8
Losses	(.1		)	(.1		)
Net	.2			2.6
Equity securities:
Gains	14.9			12.1
Losses	—			—
Net	14.9			12.1
Other long-term investments, net	.2			—
Total from actual sale transactions	15.5			14.8
From unrealized changes in fair value of equity securities	(152.0		)	—
From impairments	—			—
Total investment gains (losses)	(136.4		)	14.8
Income taxes (credits)	(28.7		)	5.1
Net investment gains (losses)	$	(107.7	)	$	9.6

Changes in unrealized investment gains (losses) on:
Fixed maturity securities	$	(148.7	)	$	17.0
Less: Deferred income taxes (credits)	(31.3		)	5.9
	(117.4		)	11.1

Equity securities & other long-term investments	(.4		)	48.1
Less: Deferred income taxes (credits)	—			16.7
	(.3		)	31.3
Net changes in unrealized investment gains (losses)	$	(117.8	)	$	42.5

__________


(a)	Investment expenses consist of personnel costs and investment management and custody service fees, as well as interest incurred on funds held of $.1 for both the quarters ended March 31, 2018 and 2017.

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 incurrence of possibly higher or lower than anticipated claim costs due to all of these factors, and to the evolution, interpretation, and expansion of tort law, as well as the effects of unexpected jury verdicts.

All reserves are therefore based on estimates which are periodically reviewed and evaluated in the light of emerging claim experience and changing circumstances. The resulting changes in estimates are recorded in operations of the periods during which they are made. Return and additional premiums and policyholders' dividends, all of which tend to be affected by development of claims in future years, may offset, in whole or in part, favorable or unfavorable claim developments for certain coverages such as workers' compensation, portions of which are written under loss sensitive programs that provide for such adjustments. The Company believes that its overall reserving practices have been

consistently applied over many years, and that its aggregate net reserves have generally resulted in reasonable approximations of the ultimate net costs of claims incurred. However, no representation is made nor is any guaranty given that ultimate net claim and related costs will not develop in future years to be greater or lower than currently established reserve estimates.

The Company’s accounting policy regarding the establishment of claim reserve estimates is described in Note 1(h) to the consolidated financial statements included in Old Republic’s 2017 Annual Report on Form 10-K. The following table shows an analysis of changes in aggregate reserves for the Company's losses, claims and settlement expenses for each of the periods shown.



	Quarters Ended
	March 31,
	2018			2017
Gross reserves at beginning of period	$	9,237.6		$	9,206.0
Less: reinsurance losses recoverable	2,921.1			2,766.1
Net reserves at beginning of period:
General Insurance	5,471.5			5,249.9
Title Insurance	559.7			602.0
RFIG Run-off	271.7			574.0
Other	13.5			13.8
Sub-total	6,316.4			6,439.8
Incurred claims and claim adjustment expenses:
Provisions for insured events of the current year:
General Insurance	546.3			513.3
Title Insurance	21.1			21.3
RFIG Run-off (a)	18.7			32.8
Other	5.7			7.0
Sub-total	591.9			574.6
Change in provision for insured events of prior years:
General Insurance	15.9			10.1
Title Insurance	(8.2		)	(10.3		)
RFIG Run-off (a)	(7.2		)	(13.0		)
Other	(2.3		)	(1.8		)
Sub-total	(1.8		)	(15.1		)
Total incurred claims and claim adjustment expenses (a)	590.1			559.5
Payments:
Claims and claim adjustment expenses attributable to
insured events of the current year:
General Insurance	104.2			94.1
Title Insurance	.1			.2
RFIG Run-off (a)(b)	—			.2
Other	2.2			2.5
Sub-total	106.7			97.1
Claims and claim adjustment expenses attributable to
insured events of prior years:
General Insurance	368.0			367.5
Title Insurance	13.6			14.7
RFIG Run-off (b)	34.0			53.4
Other	2.4			2.2
Sub-total	418.1			437.8
Total payments (b)	524.8			535.0
Amount of reserves for unpaid claims and claim adjustment expenses
at the end of each period, net of reinsurance losses recoverable: (c)
General Insurance	5,561.5			5,311.7
Title Insurance	558.7			598.1
RFIG Run-off	249.1			540.2
Other	12.2			14.2
Sub-total	6,381.7			6,464.3
Reinsurance losses recoverable	2,890.7			2,766.9
Gross reserves at end of period	$	9,272.4		$	9,231.3

__________

(a)

In common with all other insurance coverages, RFIG Run-off mortgage guaranty settled and incurred claim and claim adjustment expenses include only those costs actually or expected to be paid by the Company. Changes in mortgage guaranty aggregate case, IBNR, and loss adjustment expense reserves shown below and entering into the determination of incurred claim costs, take into account, among a large number of variables, claim cost reductions for anticipated coverage rescissions and claims denials.

The RFIG Run-off mortgage guaranty provision for insured events of the current year was reduced by estimated coverage rescissions and claims denials of $1.2 and $1.7 for the year-to-date periods ended March 31, 2018 and 2017, respectively. The provision for insured events of prior years for the periods shown in the table was (increased) reduced by estimated coverage rescissions and claims denials of $(2.1) and $(1.6), respectively. Prior year development was also affected in varying degrees by differences between actual claim settlements relative to expected experience, by reinstatement of previously rescinded or denied claims, and by subsequent revisions of assumptions in regards to claim frequency, severity or levels of associated claim settlement costs which result from consideration of underlying trends and expectations.


(b)	Rescissions reduced the Company's paid losses by an estimated $1.4 and $3.0 for the year-to-date periods ended March 31, 2018 and 2017, respectively.


(c)	Net reserves for claims that have been incurred but are not yet reported ("IBNR") carried in each segment were as follows:




	March 31,		March 31,		December 31,
	2018		2017		2017
General Insurance	$	2,686.9	$	2,515.3	$	2,585.9
Title Insurance	478.0		521.5		479.3
RFIG Run-off	30.0		208.6		30.5
Other	4.7		5.0		4.7
Total	$	3,199.8	$	3,250.6	$	3,100.6

5. Employee Benefit Plans:

The Company had an active pension plan (the "Plan") covering a portion of its work force until December 31, 2013. The Plan is a defined benefit plan pursuant to which pension payments are based primarily on years of service and employee compensation near retirement. The Plan was closed to new participants and benefits were frozen as of December 31, 2013. As a result, eligible employees retained all of the vested rights as of the effective date of the freeze. While additional benefits no longer accrue, the Company's cumulative obligation continues to be subject to further adjustment due to changes in actuarial assumptions such as expected mortality and changes in interest rates. Net periodic pension costs for the quarterly periods ended March 31, 2018 and 2017 were not material to Old Republic's consolidated statements of income.

6. Information About Segments of Business:

Old Republic is engaged in the single business of insurance underwriting and related services. The Company conducts its operations through a number of regulated insurance company subsidiaries organized into three major segments, namely its General Insurance Group (property and liability insurance), Title Insurance Group, and the Republic Financial Indemnity Group ("RFIG") Run-off Business. The results of a small life & accident insurance business are included with those of its holding company parent and minor corporate services operations. Each of the Company's segments underwrites and services only those insurance coverages which may be written by it pursuant to state insurance regulations and corporate charter provisions. Segment results exclude investment gains or losses and other-than-temporary impairments as these are aggregated in the consolidated totals. The contributions of Old Republic's insurance industry segments to consolidated totals are shown in the following table.



	Quarters Ended
	March 31,
	2018		2017
General Insurance:
Net premiums earned	$	791.2	$	742.8
Net investment income and other income	113.5		106.2
Total revenues before investment gains or losses	$	904.8	$	849.0
Income before income taxes (credits) and investment
gains or losses (a)	$	83.3	$	93.7
Income tax expense (credits) on above	$	11.5	$	28.0

Title Insurance:
Net premiums earned	$	414.5	$	418.3
Title, escrow and other fees	99.3		99.7
Sub-total	513.8		518.0
Net investment income and other income	9.7		9.7
Total revenues before investment gains or losses	$	523.6	$	527.8
Income before income taxes (credits) and investment
gains or losses (a)	$	29.5	$	40.4
Income tax expense (credits) on above	$	6.3	$	13.8

RFIG Run-off Business:
Net premiums earned	$	21.3	$	35.5
Net investment income and other income	5.3		5.5
Total revenues before investment gains or losses	$	26.7	$	41.1
Income before income taxes (credits) and investment
gains or losses	$	10.9	$	14.5
Income tax expense (credits) on above	$	2.2	$	5.2



Consolidated Revenues:
Total revenues of above Company segments	$	1,455.2		$	1,418.0
Other sources (b)	41.4			41.9
Consolidated investment gains (losses):
Realized from actual transactions	15.5			14.8
Unrealized from changes in fair value of equity securities	(152.0		)	—
Total realized and unrealized investment gains (losses)	(136.4		)	14.8
Consolidation elimination adjustments	(29.7		)	(29.9		)
Consolidated revenues	$	1,330.4		$	1,444.8

Consolidated Income (Loss) Before Income
Taxes (Credits):
Total income before income taxes (credits)
and investment gains or losses of
above Company segments	$	123.8		$	148.7
Other sources - net (b)	6.5			1.1
Consolidated investment gains (losses):
Realized from actual transactions	15.5			14.8
Unrealized from changes in fair value of equity securities	(152.0		)	—
Total realized and unrealized investment gains (losses)	(136.4		)	14.8
Consolidated income (loss) before income
taxes (credits)	$	(6.0	)	$	164.7

Consolidated Income Tax Expense (Credits):
Total income tax expense (credits)
for above Company segments	$	20.1		$	47.1
Other sources - net (b)	(1.5		)	(.7		)
Income tax expense (credits) on consolidated
investment gains (losses)	(28.7		)	5.1
Consolidated income tax expense (credits)	$	(10.1	)	$	51.6



	March 31,			December 31,
	2018			2017
Consolidated Assets:
General Insurance	$	16,015.8		$	16,055.5
Title Insurance	1,401.5			1,466.0
RFIG Run-off Business	777.3			805.0
Total assets for the above company segments	18,194.8			18,326.6
Other assets (b)	1,109.9			1,440.9
Consolidation elimination adjustments	(305.9		)	(364.0		)
Consolidated assets	$	18,998.8		$	19,403.5

__________


(a)	Income before income taxes (credits) is reported net of interest charges on intercompany financing arrangements with Old Republic's holding company parent for the following segments: General - $15.4 and $14.1 for the quarters ended March 31, 2018 and 2017, respectively, and Title - $1.4 and $2.1 for the quarters ended March 31, 2018 and 2017, respectively.


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

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. Under GAAP, an estimated loss is accrued only if the loss is probable and reasonably estimable. At March 31, 2018, the Company did not have material non-claim litigation exposures in its consolidated business for which adequate claim and related expense provisions had not been made.

8. Debt:

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



	March 31, 2018				December 31, 2017
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
3.75% Convertible Senior Notes due 2018	$	—	$	—	$	470.6	$	652.2
4.875% Senior Notes due 2024	396.3		422.5		396.2		430.3
3.875% Senior Notes due 2026	545.3		541.4		545.1		553.9
ESSOP debt	—		—		4.2		4.2
Other miscellaneous debt with an average yield of 2.97%
and 2.45%, respectively	32.4		32.5		32.4		32.5
Total debt	$	974.1	$	996.5	$	1,448.7	$	1,673.2

During the first quarter 2018, the Company's outstanding aggregate principal amount of the 3.75% Convertible Senior Notes were converted into 32,229,787 shares of Old Republic common stock.

On August 26, 2016, the Company completed a public offering of $550.0 aggregate principal amount of Senior Notes. The notes bear interest at a rate of 3.875% per year and mature on August 26, 2026.

On September 23, 2014, the Company completed a public offering of $400.0 aggregate principal amount of Senior Notes. The notes bear interest at a rate of 4.875% per year and mature on October 1, 2024.

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 the carrying value and fair value of financial liabilities segregated among the various input levels described in Note 3 above:

Carrying

Fair

Value

Level 1

Level 2

Level 3

Financial Liabilities: