|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ORI Consolidated
|
|
Quarters Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2016
|
|
2015
|
|
Change
|
|
2016
|
|
2015
|
|
Change
|
Net premiums and fees earned
|
$
|
1,365.4
|
|
|
$
|
1,372.1
|
|
|
(0.5
|
)%
|
|
$
|
3,925.1
|
|
|
$
|
3,840.1
|
|
|
2.2
|
%
|
Net investment income
|
|
95.7
|
|
|
|
104.2
|
|
|
(8.1
|
)
|
|
|
287.0
|
|
|
|
288.9
|
|
|
(0.6
|
)
|
Other income
|
|
27.5
|
|
|
|
27.8
|
|
|
(1.2
|
)
|
|
|
81.4
|
|
|
|
79.8
|
|
|
2.0
|
|
Operating revenues
|
|
1,488.7
|
|
|
|
1,504.2
|
|
|
(1.0
|
)
|
|
|
4,293.6
|
|
|
|
4,208.9
|
|
|
2.0
|
|
Benefits and claim costs
|
|
595.2
|
|
|
|
656.7
|
|
|
(9.4
|
)
|
|
|
1,762.1
|
|
|
|
1,835.0
|
|
|
(4.0
|
)
|
Sales and general expenses
|
|
724.0
|
|
|
|
693.9
|
|
|
4.3
|
|
|
|
2,060.3
|
|
|
|
1,929.5
|
|
|
6.8
|
|
Interest and other costs
|
|
12.6
|
|
|
|
10.2
|
|
|
23.4
|
|
|
|
34.0
|
|
|
|
31.0
|
|
|
9.7
|
|
Total operating expenses
|
|
1,331.9
|
|
|
|
1,360.9
|
|
|
(2.1
|
)
|
|
|
3,856.5
|
|
|
|
3,795.5
|
|
|
1.6
|
|
Pretax operating income (loss)
|
|
156.7
|
|
|
|
143.3
|
|
|
9.4
|
|
|
|
437.0
|
|
|
|
413.3
|
|
|
5.7
|
|
Income taxes (credits)
|
|
50.5
|
|
|
|
44.2
|
|
|
14.1
|
|
|
|
139.8
|
|
|
|
131.9
|
|
|
6.0
|
|
Net operating income (loss)
|
|
106.2
|
|
|
|
99.0
|
|
|
7.3
|
|
|
|
297.2
|
|
|
|
281.4
|
|
|
5.6
|
|
Realized investment gains (losses)
|
|
7.2
|
|
|
|
41.4
|
|
|
(82.4
|
)
|
|
|
58.1
|
|
|
|
77.0
|
|
|
(24.5
|
)
|
Income taxes (credits) on realized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
investment gains (losses)
|
|
2.5
|
|
|
|
14.5
|
|
|
(82.4
|
)
|
|
|
20.3
|
|
|
|
26.9
|
|
|
(24.5
|
)
|
Net realized investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
gains (losses)
|
|
4.7
|
|
|
|
26.9
|
|
|
(82.4
|
)
|
|
|
37.7
|
|
|
|
50.0
|
|
|
(24.5
|
)
|
Net income (loss)
|
$
|
110.9
|
|
|
$
|
125.9
|
|
|
(11.9
|
)%
|
|
$
|
335.0
|
|
|
$
|
331.4
|
|
|
1.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Claim ratio
|
|
43.6
|
%
|
|
47.9
|
%
|
|
|
|
44.9
|
%
|
|
47.8
|
%
|
|
|
Expense ratio
|
|
50.8
|
|
|
48.3
|
|
|
|
|
50.2
|
|
|
47.9
|
|
|
|
Composite underwriting ratio
|
|
94.4
|
%
|
|
96.2
|
%
|
|
|
|
95.1
|
%
|
|
95.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated operating cash flow
|
|
|
|
|
|
|
|
|
$
|
401.9
|
|
|
$
|
566.5
|
|
|
(29.0
|
)%
|
Consolidated operating cash flow was additive to investable funds and other operating management needs in the amount of $401.9 and $566.5 for the first nine months of 2016 and 2015, respectively. Excluding the inherently negative MI and CCI operating cash flows, these amounts would be $488.3 and $671.9, respectively.
The sum-total of Old Republic's segmented results is represented by the following major components of pretax consolidated income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2016
|
|
2015
|
|
Change
|
|
2016
|
|
2015
|
|
Change
|
Pretax operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting and related services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All segments except RFIG
|
$
|
61.0
|
|
|
$
|
68.2
|
|
|
(10.6
|
)%
|
|
$
|
141.1
|
|
|
$
|
152.0
|
|
|
(7.2
|
)%
|
RFIG run-off
|
|
12.6
|
|
|
|
(18.9
|
)
|
|
166.4
|
|
|
|
42.9
|
|
|
|
3.4
|
|
|
N/M
|
Subtotal
|
|
73.6
|
|
|
|
49.2
|
|
|
49.4
|
|
|
|
184.0
|
|
|
|
155.4
|
|
|
18.4
|
|
Net investment income
|
|
95.7
|
|
|
|
104.2
|
|
|
(8.1
|
)
|
|
|
287.0
|
|
|
|
288.9
|
|
|
(0.6
|
)
|
Interest and other costs
|
|
(12.6
|
)
|
|
|
(10.2
|
)
|
|
23.4
|
|
|
|
(34.0
|
)
|
|
|
(31.0
|
)
|
|
9.7
|
|
Total
|
|
156.7
|
|
|
|
143.3
|
|
|
9.4
|
|
|
|
437.0
|
|
|
|
413.3
|
|
|
5.7
|
|
Realized investment gains(losses)
|
|
7.2
|
|
|
|
41.4
|
|
|
(82.4
|
)
|
|
|
58.1
|
|
|
|
77.0
|
|
|
(24.5
|
)
|
Consolidated pretax income
|
$
|
164.0
|
|
|
$
|
184.7
|
|
|
(11.2
|
)%
|
|
$
|
495.2
|
|
|
$
|
490.3
|
|
|
1.0
|
%
|
|
|
Cash, Invested Assets, and Shareholders' Equity -
The table below reflects Old Republic's consolidated cash and invested asset balances as well as the shareholders’ equity account at the dates shown.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, Invested Assets, and Shareholders' Equity
|
|
|
|
|
|
|
|
% Change
|
|
Sept. 30,
|
|
Dec. 31,
|
|
Sept. 30,
|
|
Sept. '16
|
|
Sept. '16
|
|
2016
|
|
2015
|
|
2015
|
|
Dec. '15
|
|
Sept. '15
|
Cash and invested assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carried at fair value
|
$
|
12,121.9
|
|
|
$
|
11,119.6
|
|
|
$
|
11,192.9
|
|
|
9.0
|
%
|
|
8.3
|
%
|
|
Carried at amortized cost
|
|
748.5
|
|
|
|
355.8
|
|
|
|
195.6
|
|
|
110.4
|
|
|
282.7
|
|
|
Total per balance sheet
|
$
|
12,870.5
|
|
|
$
|
11,475.5
|
|
|
$
|
11,388.6
|
|
|
12.2
|
%
|
|
13.0
|
%
|
|
Original cost basis of all
|
$
|
12,146.1
|
|
|
$
|
11,284.5
|
|
|
$
|
11,157.1
|
|
|
7.6
|
%
|
|
8.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders' equity:
|
Total
|
$
|
4,446.1
|
|
|
$
|
3,880.8
|
|
|
$
|
3,853.8
|
|
|
14.6
|
%
|
|
15.4
|
%
|
|
Per common share
|
$
|
17.13
|
|
|
$
|
15.02
|
|
|
$
|
14.95
|
|
|
14.0
|
%
|
|
14.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Composition of shareholders' equity per share:
|
|
|
|
|
|
|
|
|
|
|
|
Equity before items below
|
$
|
15.64
|
|
|
$
|
14.91
|
|
|
$
|
14.73
|
|
|
4.9
|
%
|
|
6.2
|
%
|
Unrealized investment gains (losses) and other
|
|
|
|
|
|
|
|
|
|
|
|
|
accumulated comprehensive income (loss)
|
|
1.49
|
|
|
|
0.11
|
|
|
|
0.22
|
|
|
|
|
|
Total
|
$
|
17.13
|
|
|
$
|
15.02
|
|
|
$
|
14.95
|
|
|
14.0
|
%
|
|
14.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segmented composition of
|
|
|
|
|
|
|
|
|
|
|
|
|
shareholders' equity per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Excluding run-off segment
|
$
|
15.87
|
|
|
$
|
14.06
|
|
|
$
|
14.04
|
|
|
12.9
|
%
|
|
13.0
|
%
|
RFIG run-off segment
|
|
1.26
|
|
|
|
0.96
|
|
|
|
0.91
|
|
|
|
|
|
Total
|
$
|
17.13
|
|
|
$
|
15.02
|
|
|
$
|
14.95
|
|
|
14.0
|
%
|
|
14.6
|
%
|
Old Republic's invested assets are managed in consideration of enterprise-wide risk management objectives. Most importantly, these are intended to ensure solid funding of insurance subsidiaries' long-term obligations to policyholders and other beneficiaries, and the resulting long-term stability of the subsidiaries’ capital accounts. To this end, the investment portfolio contains no significant insurance risk-correlated asset exposures to real estate, mortgage-backed securities, collateralized debt obligations ("CDO's"), derivatives, hybrid securities, or illiquid private equity investments. Moreover, the Company does not engage in hedging or securities lending transactions, nor does it invest in securities whose values are predicated on non-regulated financial instruments exhibiting amorphous or unfunded counter-party risk attributes.
As of September 30, 2016, the consolidated investment portfolio reflected an allocation of approximately 78 percent to fixed-maturity and short-term investments, and 22 percent to equities. Investments in high quality, dividend-paying equity securities have been singularly emphasized since 2013, and the asset quality of the fixed maturity portfolio has remained at high levels.
Changes in shareholders' equity per share are shown in the following table. As indicated, these changes resulted mostly from net income, increased dividend payments to shareholders, and changes in the value of invested assets carried at fair value in the periods reported upon.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders' Equity Per Share
|
|
Quarter
|
|
|
|
Year
|
|
Ended
|
|
Nine Months Ended
|
|
Ended
|
|
Sept. 30,
|
|
September 30,
|
|
Dec. 31,
|
|
2016
|
|
2016
|
|
2015
|
|
2015
|
Beginning balance
|
$
|
16.89
|
|
|
$
|
15.02
|
|
|
$
|
15.15
|
|
|
$
|
15.15
|
|
Changes in shareholders' equity:
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income (loss)
|
|
0.41
|
|
|
|
1.15
|
|
|
|
1.09
|
|
|
|
1.40
|
|
Net realized investment gains (losses):
|
|
|
|
|
|
|
|
|
|
|
|
From sales
|
|
0.03
|
|
|
|
0.15
|
|
|
|
0.19
|
|
|
|
0.23
|
|
From impairments
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
|
|
—
|
|
|
|
—
|
|
Subtotal
|
|
0.02
|
|
|
|
0.14
|
|
|
|
0.19
|
|
|
|
0.23
|
|
Net unrealized investment gains (losses)
|
|
—
|
|
|
|
1.35
|
|
|
|
(0.86
|
)
|
|
|
(0.96
|
)
|
Total realized and unrealized investment gains (losses)
|
|
0.02
|
|
|
|
1.49
|
|
|
|
(0.67
|
)
|
|
|
(0.73
|
)
|
Cash dividends
|
|
(0.19
|
)
|
|
|
(0.56
|
)
|
|
|
(0.56
|
)
|
|
|
(0.74
|
)
|
Stock issuance, foreign exchange, and other transactions
|
|
—
|
|
|
|
0.03
|
|
|
|
(0.06
|
)
|
|
|
(0.06
|
)
|
Net change
|
|
0.24
|
|
|
|
2.11
|
|
|
|
(0.20
|
)
|
|
|
(0.13
|
)
|
Ending balance
|
$
|
17.13
|
|
|
$
|
17.13
|
|
|
$
|
14.95
|
|
|
$
|
15.02
|
|
Percentage change for the period
|
|
1.4
|
%
|
|
|
14.0
|
%
|
|
|
(1.3
|
)%
|
|
|
(0.9
|
)%
|
|
|
Capitalization -
As the table below indicates, the 23.6% increase in Old Republic's capitalization for the nine months ended September 30, 2016 consisted of a 14.6% increase in the common shareholders' account and a 60.4% increase in total debt resulting from this year’s third quarter successful issuance of a $550 million, ten year senior debt security in the public markets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalization(*)
|
|
|
September 30,
|
|
December 31,
|
|
September 30,
|
|
|
2016
|
|
2015
|
|
2015
|
Debt:
|
|
|
|
|
|
|
|
|
|
3.75% Convertible Senior Notes due 2018
|
|
$
|
547.3
|
|
|
$
|
546.0
|
|
|
$
|
545.5
|
|
4.875% Senior Notes due 2024
|
|
|
395.5
|
|
|
|
395.1
|
|
|
|
395.0
|
|
3.875% Senior Notes due 2026
|
|
|
544.4
|
|
|
|
—
|
|
|
|
—
|
|
ESSOP debt with an average yield of 4.0%
|
|
|
8.1
|
|
|
|
11.7
|
|
|
|
11.7
|
|
Other miscellaneous debt with an average yield of 1.8%
|
|
|
32.4
|
|
|
|
—
|
|
|
|
—
|
|
Total debt
|
|
|
1,528.0
|
|
|
|
952.8
|
|
|
|
952.2
|
|
Common shareholders' equity
|
|
|
4,446.1
|
|
|
|
3,880.8
|
|
|
|
3,853.8
|
|
Total capitalization
|
|
$
|
5,974.1
|
|
|
$
|
4,833.7
|
|
|
$
|
4,806.1
|
|
|
|
|
|
|
|
|
|
|
|
Capitalization ratios:
|
|
|
|
|
|
|
|
|
|
Debt
|
|
|
25.6
|
%
|
|
|
19.7
|
%
|
|
|
19.8
|
%
|
Common shareholders' equity
|
|
|
74.4
|
|
|
|
80.3
|
|
|
|
80.2
|
|
Total
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
__________________
(*) Certain debt amounts have been reduced due to the reclassification of relatively immaterial debt issuance costs previously classified as deferred assets, in order to comply with a 2015 pronouncement by the Financial Accounting Standards Board.
|
|
DETAILED MANAGEMENT ANALYSIS
|
This section of the Management Analysis of Financial Position and Results of Operations is additive to and should be read in conjunction with the Executive Summary which precedes it.
|
|
FINANCIAL ACCOUNTING AND REPORTING POLICIES
|
The Company's annual and interim financial statements incorporate a large number and types of estimates relative to matters which are highly uncertain at the time the estimates are made. The estimation process required of an insurance enterprise is by its very nature highly dynamic inasmuch as it necessitates a continuous evaluation, analysis, and quantification of factual data as it becomes known to the Company. As a result, actual experienced outcomes can differ from the estimates made at any point in time and thus affect future periods' reported revenues, expenses, net income or loss, and financial condition.
Old Republic believes that its most critical accounting estimates relate to: a) the determination of other-than-temporary impairments ("OTTI") in the value of fixed maturity and equity investments; b) the valuation of deferred income tax assets; c) the establishment and recoverability of deferred acquisition costs; d) the recoverability of reinsured paid and/or outstanding losses; and e) the establishment of reserves for losses and loss adjustment expenses. The major assumptions and methods used in setting these estimates are discussed in the Company's
2015
Annual Report on Form 10-K.
The Company's financial position at
September 30, 2016
reflected increases in assets, liabilities, and common shareholders' equity of
10.0%
,
8.7%
, and
14.6%
, respectively, when compared to the immediately preceding year-end. Cash and invested assets represented
68.4%
and
67.1%
of consolidated assets as of
September 30, 2016
and
December 31, 2015
, respectively. As of
September 30, 2016
, the cash, accrued investment income, and invested asset base rose by
12.2%
to
$12,870.5
.
Investments
- During the
first nine months
of
2016
and
2015
, the Company committed the majority of investable funds to short to intermediate-term fixed maturity securities and higher yielding publicly traded large capitalization common shares. At both
September 30, 2016
and
2015
, approximately
99%
of the Company's investments consisted of marketable securities. Old Republic continues to adhere to its long-term policy of investing primarily in investment grade, marketable securities. The portfolio contains no significant insurance risk-correlated asset exposures to real estate, mortgage-backed securities, collateralized debt obligations ("CDO's"), derivatives, hybrid securities, or illiquid private equity investments. In a similar vein, the Company does not engage in hedging or securities lending transactions, nor does it invest in securities whose values are predicated on non-regulated financial instruments exhibiting amorphous or unfunded counter-party risk attributes. At
September 30, 2016
, the Company had no fixed maturity investments in default as to principal and/or interest.
Short-term maturity investment positions reflect a large variety of seasonal and intermediate-term factors including current operating needs, expected operating cash flows, seasonality of quarterly cash flow, debt maturities, and investment strategy considerations. Accordingly, the future level of short-term investments will vary and respond to the interplay of these factors and may, as a result, increase or decrease from current levels.
The Company does not own or utilize derivative financial instruments for the purpose of hedging, enhancing the overall return of its investment portfolio, or reducing the cost of its debt obligations. With regard to its equity portfolio, the Company does not own any options nor does it engage in any type of option writing. Traditional investment management tools and techniques are employed to address the yield and valuation exposures of the invested assets base. The long-term fixed maturity investment portfolio is managed so as to limit various risks inherent in the bond market. Credit risk is addressed through asset diversification and the purchase of investment grade securities. Reinvestment rate risk is reduced by concentrating on non-callable issues, and by taking asset-liability matching considerations into account. Purchases of mortgage and asset backed securities, which have variable principal prepayment options, are generally avoided. Market value risk is limited through the purchase of bonds of intermediate maturity. The combination of these investment management practices is expected to produce a more stable long-term fixed maturity investment portfolio that is not subject to extreme interest rate sensitivity and principal deterioration.
The fair value of the Company's long-term fixed maturity investment portfolio is sensitive, however, to fluctuations in the level of interest rates, but not materially affected by changes in anticipated cash flows caused by any prepayments. The impact of interest rate movements on the long-term fixed maturity investment portfolio generally affects net unrealized gains or losses. As a general rule, rising interest rates enhance currently available yields but typically lead to a reduction in the fair value of existing fixed maturity investments. By contrast, a decline in such rates reduces currently available yields but usually serves to increase the fair value of the existing fixed maturity investment portfolio. All such changes in fair value of available for sale securities are reflected, net of deferred income taxes, directly in the shareholders' equity account, and as a separate component of the statement of comprehensive income. Fixed maturity securities classified as held to maturity are carried at amortized cost, and therefore, fluctuations in unrealized gains and losses do not impact shareholders' equity. Given the Company's inability to forecast or control the movement of interest rates, Old Republic sets the maturity spectrum of its fixed maturity securities portfolio within parameters of estimated liability payouts, and focuses the overall portfolio on high quality investments. By so doing, Old Republic believes it is reasonably assured of its ability to hold securities to maturity as it may deem necessary in changing environments, and of ultimately recovering their aggregate cost.
Possible future declines in fair values for Old Republic's available for sale bond and equity portfolios would negatively affect the common shareholders' equity account at any point in time, but would not necessarily result in the recognition of realized investment losses. 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 in the portfolio's value are evaluated and established at each quarterly balance sheet date. In reviewing investments for other-than-temporary impairment, the Company, in addition to a security's market price history, considers the totality of such factors as the issuer's operating results, financial condition and liquidity, its ability to access capital markets, credit rating trends, most current audit opinion, industry and securities markets conditions, and analyst expectations to reach its conclusions. Sudden fair value declines caused by such adverse developments as newly emerged or imminent bankruptcy filings, issuer default on significant obligations, or reports of financial accounting developments that bring into question the validity of the issuer's previously reported earnings or financial condition, are recognized as realized losses as soon as credible publicly available information emerges to confirm such developments. Absent issuer-specific circumstances that would result in a contrary conclusion, any equity security with an unrealized investment loss amounting to a 20% or greater decline consecutively during a six month period is considered other-than-temporarily-impaired. In the event the Company's estimate of other-than-temporary impairments is insufficient at any point in time, future periods' net income (loss) would be affected adversely by the recognition of additional realized or impairment losses, but its financial condition 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 following tables show certain information relating to the Company's available for sale and held to maturity fixed maturity and equity portfolios as of the dates shown:
|
|
|
|
|
|
|
Credit Quality Ratings of Fixed Maturity Securities (a)
|
|
|
|
|
|
September 30,
|
|
December 31,
|
|
2016
|
|
2015
|
Aaa
|
19.5
|
%
|
|
17.2
|
%
|
Aa
|
11.5
|
|
|
9.6
|
|
A
|
31.0
|
|
|
32.3
|
|
Baa
|
30.0
|
|
|
34.7
|
|
Total investment grade
|
92.0
|
|
|
93.8
|
|
All other (b)
|
8.0
|
|
|
6.2
|
|
Total
|
100.0
|
%
|
|
100.0
|
%
|
__________
|
|
(a)
|
Credit quality ratings referred to herein are a blend of those assigned by the major credit rating agencies for U.S. and Canadian Governments, Agencies, Corporates and Municipal issuers, which are converted to the above ratings classifications.
|
|
|
(b)
|
"All other" includes non-investment grade or non-rated issuers.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Unrealized Losses Stratified by Industry Concentration for Non-Investment Grade Fixed Maturity Securities
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
Amortized
Cost
|
|
Gross
Unrealized
Losses
|
|
Fixed Maturity Securities by Industry Concentration:
|
|
|
|
|
|
|
Energy
|
|
$
|
176.0
|
|
|
$
|
10.9
|
|
|
|
Telecom
|
|
23.8
|
|
|
2.3
|
|
|
|
Industrial
|
|
54.4
|
|
|
1.3
|
|
|
|
Basic Industry
|
|
23.7
|
|
|
1.1
|
|
|
|
Other (includes 3 industry groups)
|
|
26.5
|
|
|
.4
|
|
|
|
|
Total
|
|
$
|
304.5
|
|
(c)
|
$
|
16.1
|
|
|
__________
|
|
(c)
|
Represents 3.5% of the total fixed maturity securities portfolio.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Unrealized Losses Stratified by Industry Concentration for Investment Grade Fixed Maturity Securities
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
Amortized
Cost
|
|
Gross
Unrealized
Losses
|
|
Fixed Maturity Securities by Industry Concentration:
|
|
|
|
|
|
|
Natural Gas
|
|
$
|
44.5
|
|
|
$
|
.6
|
|
|
|
Municipal
|
|
141.5
|
|
|
.5
|
|
|
|
Energy
|
|
65.5
|
|
|
.2
|
|
|
|
Technology
|
|
31.1
|
|
|
.1
|
|
|
|
Other (includes 13 industry groups)
|
|
149.8
|
|
|
.3
|
|
|
|
|
Total
|
|
$
|
432.5
|
|
(d)
|
$
|
1.8
|
|
|
__________
|
|
(d)
|
Represents 4.9% of the total fixed maturity securities portfolio.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Unrealized Losses Stratified by Industry Concentration for Equity Securities
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
Cost
|
|
Gross
Unrealized
Losses
|
|
Equity Securities by Industry Concentration:
|
|
|
|
|
|
|
Energy
|
|
$
|
275.8
|
|
|
$
|
25.2
|
|
|
|
Consumer Non Durable
|
|
48.4
|
|
|
3.2
|
|
|
|
Health Care
|
|
59.4
|
|
|
2.4
|
|
|
|
Banking
|
|
23.0
|
|
|
.8
|
|
|
|
Other (includes 4 industry groups)
|
|
36.1
|
|
|
.4
|
|
|
|
|
Total
|
|
$
|
442.8
|
|
(e)
|
$
|
32.3
|
|
(f)
|
__________
|
|
(e)
|
Represents 18.5% of the total equity securities portfolio.
|
|
|
(f)
|
Represents 1.4% of the cost of the total equity securities portfolio, while gross unrealized gains represent 17.7% of the portfolio.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Unrealized Losses Stratified by Maturity Ranges for All Fixed Maturity Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized Cost
of Fixed Maturity Securities
|
|
Gross Unrealized Losses
|
|
September 30, 2016
|
|
All
|
|
Non-
Investment
Grade Only
|
|
All
|
|
Non-
Investment
Grade Only
|
|
Maturity Ranges:
|
|
|
|
|
|
|
|
|
|
Due in one year or less
|
|
$
|
49.0
|
|
|
$
|
7.9
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Due after one year through five years
|
|
312.3
|
|
|
134.5
|
|
|
5.8
|
|
|
5.2
|
|
|
Due after five years through ten years
|
|
340.9
|
|
|
142.7
|
|
|
9.3
|
|
|
8.2
|
|
|
Due after ten years
|
|
34.8
|
|
|
19.3
|
|
|
2.7
|
|
|
2.6
|
|
|
|
Total
|
|
$
|
737.1
|
|
|
$
|
304.5
|
|
|
$
|
18.0
|
|
|
$
|
16.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Unrealized Losses Stratified by Duration and Amount of Unrealized Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gross Unrealized Losses
|
|
September 30, 2016
|
|
Less than
20% of
Cost
|
|
20% to
50%
of Cost
|
|
More than
50% of Cost
|
|
Total Gross
Unrealized
Loss
|
|
Number of Months in Loss Position:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Maturity Securities:
|
|
|
|
|
|
|
|
|
|
|
One to six months
|
|
$
|
1.3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1.3
|
|
|
|
Seven to twelve months
|
|
1.8
|
|
|
—
|
|
|
—
|
|
|
1.8
|
|
|
|
More than twelve months
|
|
14.7
|
|
|
—
|
|
|
—
|
|
|
14.7
|
|
|
|
|
Total
|
|
$
|
18.0
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
18.0
|
|
|
Equity Securities:
|
|
|
|
|
|
|
|
|
|
|
One to six months
|
|
$
|
7.3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7.3
|
|
|
|
Seven to twelve months
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
More than twelve months
|
|
25.0
|
|
|
—
|
|
|
—
|
|
|
25.0
|
|
|
|
|
Total
|
|
$
|
32.3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
32.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Issues in Loss Position:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Maturity Securities:
|
|
|
|
|
|
|
|
|
|
|
One to six months
|
|
119
|
|
|
—
|
|
|
—
|
|
|
119
|
|
|
|
Seven to twelve months
|
|
15
|
|
|
—
|
|
|
—
|
|
|
15
|
|
|
|
More than twelve months
|
|
51
|
|
|
—
|
|
|
—
|
|
|
51
|
|
|
|
|
Total
|
|
185
|
|
|
—
|
|
|
—
|
|
|
185
|
|
(g)
|
Equity Securities:
|
|
|
|
|
|
|
|
|
|
|
One to six months
|
|
12
|
|
|
—
|
|
|
—
|
|
|
12
|
|
|
|
Seven to twelve months
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
More than twelve months
|
|
3
|
|
|
—
|
|
|
—
|
|
|
3
|
|
|
|
|
Total
|
|
15
|
|
|
—
|
|
|
—
|
|
|
15
|
|
(g)
|
__________
|
|
(g)
|
At
September 30, 2016
the number of issues in an unrealized loss position represent 10.1% as to fixed maturities, and 14.4% as to equity securities of the total number of such issues held by the Company.
|
The aging of issues with unrealized losses employs balance sheet date fair value comparisons with an issue's original cost. The percentage reduction from such cost reflects the decline as of a specific point in time (
September 30, 2016
in the above table) and, accordingly, is not indicative of a security's value having been consistently below its cost at the percentages shown nor throughout the periods shown.
|
|
|
|
|
|
|
|
|
|
|
Age Distribution of Fixed Maturity Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
December 31,
|
|
|
|
|
|
2016
|
|
2015
|
|
Maturity Ranges:
|
|
|
|
|
|
Due in one year or less
|
8.2
|
%
|
|
9.9
|
%
|
|
|
Due after one year through five years
|
45.9
|
|
|
40.8
|
|
|
|
Due after five years through ten years
|
43.8
|
|
|
47.0
|
|
|
|
Due after ten years through fifteen years
|
1.8
|
|
|
1.9
|
|
|
|
Due after fifteen years
|
.3
|
|
|
.4
|
|
|
|
|
Total
|
100.0
|
%
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
Average Maturity in Years
|
4.8
|
|
|
4.9
|
|
|
Duration (h)
|
4.2
|
|
|
4.3
|
|
|
___________
|
|
(h)
|
Duration is used as a measure of bond price sensitivity to interest rate changes. A duration of 4.2 as of
September 30, 2016
implies that a 100 basis point parallel increase in interest rates from current levels would result in a possible decline in the fair value of the long-term fixed maturity investment portfolio of approximately 4.2%.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Composition of Unrealized Gains (Losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
December 31,
|
|
|
|
|
|
2016
|
|
2015
|
|
Available for Sale:
|
|
|
|
|
Fixed Maturity Securities:
|
|
|
|
|
|
Amortized cost
|
$
|
8,014.1
|
|
|
$
|
8,149.4
|
|
|
|
Estimated fair value
|
8,354.7
|
|
|
8,181.5
|
|
|
|
Gross unrealized gains
|
358.1
|
|
|
185.8
|
|
|
|
Gross unrealized losses
|
(17.4
|
)
|
|
(153.8
|
)
|
|
|
|
Net unrealized gains (losses)
|
$
|
340.6
|
|
|
$
|
32.0
|
|
|
|
|
|
|
|
|
|
|
Equity Securities:
|
|
|
|
|
|
Original cost
|
$
|
2,396.6
|
|
|
$
|
1,826.4
|
|
|
|
Estimated fair value
|
2,787.4
|
|
|
1,987.8
|
|
|
|
Gross unrealized gains
|
423.1
|
|
|
266.7
|
|
|
|
Gross unrealized losses
|
(32.3
|
)
|
|
(105.3
|
)
|
|
|
|
Net unrealized gains (losses)
|
$
|
390.7
|
|
|
$
|
161.4
|
|
|
Other Assets
- Among other major assets, substantially all of the Company's receivables are not past due. Reinsurance recoverable balances on paid or estimated unpaid losses are deemed recoverable from solvent reinsurers or have otherwise been reduced by allowances for estimated amounts unrecoverable. Deferred policy acquisition costs are estimated by taking into account the direct costs relating to the successful acquisition of new or renewal insurance contracts and evaluating their recoverability on the basis of recent trends in claims costs. The Company's deferred policy acquisition cost balances have not fluctuated substantially from period-to-period, and do not represent significant percentages of assets or shareholders' equity.
Liquidity
-
The parent holding company meets its liquidity and capital needs principally through dividends and interest on intercompany financing arrangements paid by its subsidiaries. The insurance subsidiaries' ability to pay cash dividends to the parent company is generally restricted by law or subject to approval of the insurance regulatory authorities of the states in which they are domiciled. The Company can receive up to
$493.8
in dividends from its subsidiaries in
2016
without the prior approval of regulatory authorities. The liquidity achievable through such permitted dividend payments is considered sufficient to cover the parent holding company's currently expected cash outflows represented mostly by interest and scheduled repayments on outstanding debt, reasonably anticipated cash dividend payments to shareholders, modest operating expenses, and the near-term capital needs of its operating company subsidiaries. At
September 30, 2016
, the Company's consolidated debt to equity ratio was
34.4%
.
The Company's 3.75% Convertible Senior Notes, 4.875% Senior Notes, and 3.875% 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, Republic Mortgage Insurance Company, ("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 of
September 30, 2016
, RMIC was statutorily solvent and management has every expectation that its solvent state is likely to prevail.
See the Company's
2015
Annual Report on Form 10-K, Item 1 - Business for a discussion of regulatory matters affecting RMIC. Management believes these current events have precluded the aforementioned potential for an event of default from occurring in the foreseeable future.
Capitalization
-
Old Republic's total capitalization of
$5,974.1
at
September 30, 2016
consisted of debt of
$1,528.0
and common shareholders' equity of
$4,446.1
. Changes in the common shareholders' equity account reflect primarily net income for the period then ended, changes in the fair value of invested assets, and dividend payments.
Old Republic has paid cash dividends to its shareholders without interruption since 1942, and has increased the annual rate in each of the past 35 calendar years. The dividend rate is reviewed and approved by the Board of Directors on a quarterly basis each year. In establishing each year's cash dividend rate the Company does not follow a strict formulaic approach. Rather, it favors a gradual rise in the annual dividend rate that is largely reflective of long-term consolidated operating earnings trends. Accordingly, each year's dividend rate is set judgmentally in consideration of such key factors as the dividend paying capacity of the Company's insurance subsidiaries, the trends in average annual statutory and GAAP earnings for the five to ten most recent calendar years, and management's long-term expectations for the Company's consolidated business and its individual operating subsidiaries.
Under state insurance regulations, the Company's three mortgage guaranty insurance subsidiaries are required to operate at a maximum risk to capital ratio of 25:1 or otherwise hold minimum amounts of capital based on specified formulas. As noted in prior periods' reports, the Company's flagship mortgage guaranty insurance carrier had been operating pursuant to a waiver of minimum state regulatory capital requirements since late 2009. This waiver expired on August 31, 2011. The Company's mortgage insurance subsidiaries therefore discontinued writing new business in all
states and limited themselves to servicing the run-off of their existing business. As noted elsewhere herein, RMIC and RMICNC have been operating pursuant to a Summary Order since January 19, 2012 and December 3, 2012, respectively, and the risk-to-capital ratio considerations are therefore no longer of consequence.
|
|
Revenues: Premiums & Fees
|
Pursuant to GAAP applicable to the insurance industry, revenues are recognized as follows:
Substantially all general insurance premiums pertain to annual policies and are reflected in income on a pro-rata basis in association with the related benefits, claims and expenses. Earned but unbilled premiums are generally taken into income on the billing date, while adjustments for retrospective premiums, commissions and similar charges or credits are accrued on the basis of periodic evaluations of current underwriting experience and contractual obligations.
Title premium and fee revenues stemming from the Company's direct operations (which include branch offices of its title insurers and wholly owned agency subsidiaries) represent approximately
29%
of
2016
consolidated title business revenues. Such premiums are generally recognized as income at the escrow closing date which approximates the policy effective date. Fee income related to escrow and other closing services is recognized when the related services have been performed and completed. The remaining
71%
of consolidated title premium and fee revenues is produced by independent title agents and underwritten title companies. Rather than making estimates that could be subject to significant variance from actual premium and fee production, the Company recognizes revenues from those sources upon receipt. Such receipts can reflect a three to four month lag relative to the effective date of the underlying title policy, and are offset concurrently by production expenses and claim reserve provisions.
The Company's mortgage guaranty premiums primarily stem from monthly installments paid on long-duration, guaranteed renewable insurance policies. Substantially all such premiums are written and earned in the month coverage is effective. With respect to relatively few annual or single premium policies, earned premiums are largely recognized on a pro-rata basis over the terms of the policies. As described more fully in the RFIG Run-off Business' Risk Factors for premium income and long-term claim exposures in the Company's
2015
Annual Report on Form 10-K under Item 1A - Risk Factors, revenue recognition for insured loans is not appropriately matched to the risk exposure and the consequent recognition of both normal and catastrophic loss occurrences.
The major sources of Old Republic's consolidated earned premiums and fees for the periods shown were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earned Premiums and Fees
|
|
General
|
|
Title
|
|
RFIG Run-off
|
|
Other
|
|
Total
|
|
% Change
from prior
period
|
Years Ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
$
|
2,513.7
|
|
|
$
|
1,996.1
|
|
|
$
|
316.5
|
|
|
$
|
59.3
|
|
|
$
|
4,885.6
|
|
|
9.3
|
%
|
2014
|
2,735.6
|
|
|
1,759.2
|
|
|
255.4
|
|
|
60.7
|
|
|
4,811.1
|
|
|
(1.5
|
)
|
2015
|
2,894.7
|
|
|
2,045.3
|
|
|
219.9
|
|
|
19.4
|
|
|
5,179.4
|
|
|
7.7
|
|
Nine Months Ended September 30:
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
2,157.2
|
|
|
1,497.8
|
|
|
170.3
|
|
|
14.7
|
|
|
3,840.1
|
|
|
7.8
|
|
2016
|
2,192.8
|
|
|
1,587.2
|
|
|
131.0
|
|
|
14.0
|
|
|
3,925.1
|
|
|
2.2
|
|
Quarters Ended September 30:
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
744.5
|
|
|
566.7
|
|
|
55.8
|
|
|
5.0
|
|
|
1,372.1
|
|
|
9.2
|
|
2016
|
$
|
732.0
|
|
|
$
|
588.4
|
|
|
$
|
40.4
|
|
|
$
|
4.4
|
|
|
$
|
1,365.4
|
|
|
(.5
|
)%
|
The percentage allocation of net premiums earned for major insurance coverages in the General Insurance Group was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Insurance Earned Premiums by Type of Coverage
|
|
Workers'
Compensation
|
|
Commercial
Automobile
(mostly
trucking)
|
|
Financial
Indemnity
|
|
Inland
Marine
and
Property
|
|
General
Liability
|
|
Other
|
Years Ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
39.6
|
%
|
|
32.8
|
%
|
|
3.8
|
%
|
|
7.7
|
%
|
|
6.3
|
%
|
|
9.8
|
%
|
2014
|
40.6
|
|
|
31.9
|
|
|
3.9
|
|
|
7.5
|
|
|
6.2
|
|
|
9.9
|
|
2015
|
39.0
|
|
|
32.1
|
|
|
4.1
|
|
|
7.4
|
|
|
5.9
|
|
|
11.5
|
|
Nine Months Ended September 30:
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
39.2
|
|
|
31.8
|
|
|
3.9
|
|
|
7.3
|
|
|
6.0
|
|
|
11.8
|
|
2016
|
36.7
|
|
|
33.6
|
|
|
4.2
|
|
|
7.4
|
|
|
5.4
|
|
|
12.7
|
|
Quarters Ended September 30:
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
38.7
|
|
|
31.9
|
|
|
4.0
|
|
|
7.2
|
|
|
5.9
|
|
|
12.3
|
|
2016
|
35.1
|
%
|
|
34.2
|
%
|
|
4.3
|
%
|
|
7.4
|
%
|
|
5.4
|
%
|
|
13.6
|
%
|
The following table shows the percentage distribution of Title Group premium and fee revenues by production sources:
|
|
|
|
|
|
|
Title Premium and Fee Production by Source
|
|
Direct
Operations
|
|
Independent
Title
Agents &
Other
|
Years Ended December 31:
|
|
|
|
2013
|
27.9
|
%
|
|
72.1
|
%
|
2014
|
27.1
|
|
|
72.9
|
|
2015
|
27.2
|
|
|
72.8
|
|
Nine Months Ended September 30:
|
|
|
|
2015
|
27.9
|
|
|
72.1
|
|
2016
|
28.6
|
|
|
71.4
|
|
Quarters Ended September 30:
|
|
|
|
2015
|
26.5
|
|
|
73.5
|
|
2016
|
28.7
|
%
|
|
71.3
|
%
|
The following tables provide information on production and related risk exposure trends for Old Republic's mortgage guaranty insurance operation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earned Premiums
|
|
Persistency
|
Premium and Persistency Trends by Type:
|
Direct
|
|
Net
|
|
Traditional
Primary
|
|
Bulk
|
Years Ended December 31:
|
|
|
|
|
|
|
|
2013
|
$
|
296.6
|
|
|
$
|
286.7
|
|
|
79.1
|
%
|
|
81.9
|
%
|
2014
|
234.6
|
|
|
227.6
|
|
|
82.2
|
|
|
66.9
|
|
2015
|
201.1
|
|
|
195.9
|
|
|
79.9
|
|
|
56.1
|
|
Nine Months Ended September 30:
|
|
|
|
|
|
|
|
2015
|
156.1
|
|
|
152.2
|
|
|
80.8
|
|
|
58.1
|
|
2016
|
122.2
|
|
|
119.8
|
|
|
78.8
|
%
|
|
64.8
|
%
|
Quarters Ended September 30:
|
|
|
|
|
|
|
|
2015
|
50.7
|
|
|
49.4
|
|
|
|
|
|
2016
|
$
|
37.3
|
|
|
$
|
36.7
|
|
|
|
|
|
As previously discussed, the Company's flagship mortgage guaranty insurance carrier ceased the underwriting of new policies effective August 31, 2011 and the existing book of business was placed in run-off operating mode.
While there is no consensus in the marketplace as to the precise definition of "sub-prime", Old Republic generally views loans with credit (FICO) scores less than 620, loans underwritten with reduced levels of documentation and loans with loan to value ratios in excess of 95% as having a higher risk of default. Risk in force concentrations by these attributes are disclosed in the following tables for both traditional primary and bulk production. Premium rates for loans exhibiting greater risk attributes are typically higher in anticipation of potentially greater defaults and claim costs. Additionally, bulk insurance policies, which represent
6.6%
of total net risk in force as of
September 30, 2016
, are frequently subject to deductibles and aggregate stop losses which serve to limit the overall risk on a pool of insured loans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Risk in Force
|
Net Risk in Force By Type:
|
Traditional
Primary
|
|
Bulk
|
|
Other
|
|
Total
|
As of December 31:
|
|
|
|
|
|
|
|
2013
|
$
|
9,579.6
|
|
|
$
|
704.8
|
|
|
$
|
48.5
|
|
|
$
|
10,333.0
|
|
2014
|
7,984.8
|
|
|
549.6
|
|
|
31.8
|
|
|
8,566.2
|
|
2015
|
6,414.9
|
|
|
428.2
|
|
|
24.1
|
|
|
6,867.3
|
|
As of September 30:
|
|
|
|
|
|
|
|
2015
|
6,809.2
|
|
|
449.2
|
|
|
25.8
|
|
|
7,284.3
|
|
2016
|
$
|
5,369.4
|
|
|
$
|
377.9
|
|
|
$
|
21.1
|
|
|
$
|
5,768.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Analysis of Risk in Force
|
Risk in Force Distribution By FICO Scores:
|
FICO less
than 620
|
|
FICO 620
to 680
|
|
FICO
Greater
than 680
|
|
Unscored/
Unavailable
|
|
|
|
|
|
|
|
|
Traditional Primary:
|
|
|
|
|
|
|
|
As of December 31:
|
|
|
|
|
|
|
|
2013
|
6.6
|
%
|
|
28.1
|
%
|
|
64.3
|
%
|
|
1.0
|
%
|
2014
|
6.6
|
|
|
28.5
|
|
|
64.0
|
|
|
.9
|
|
2015
|
6.8
|
|
|
29.3
|
|
|
63.0
|
|
|
.9
|
|
As of September 30:
|
|
|
|
|
|
|
|
2015
|
6.8
|
|
|
29.2
|
|
|
63.2
|
|
|
.8
|
|
2016
|
7.1
|
%
|
|
30.1
|
%
|
|
62.1
|
%
|
|
.7
|
%
|
|
|
|
|
|
|
|
|
Bulk(a):
|
|
|
|
|
|
|
|
As of December 31:
|
|
|
|
|
|
|
|
2013
|
23.5
|
%
|
|
33.0
|
%
|
|
43.3
|
%
|
|
.2
|
%
|
2014
|
26.1
|
|
|
33.1
|
|
|
40.7
|
|
|
.1
|
|
2015
|
28.4
|
|
|
32.2
|
|
|
39.2
|
|
|
.2
|
|
As of September 30:
|
|
|
|
|
|
|
|
2015
|
27.9
|
|
|
32.1
|
|
|
39.8
|
|
|
.2
|
|
2016
|
29.4
|
%
|
|
32.1
|
%
|
|
38.4
|
%
|
|
.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk in Force Distribution By Loan to Value ("LTV") Ratio:
|
LTV
85.0
and below
|
|
LTV
85.01
to 90.0
|
|
LTV
90.01
to 95.0
|
|
LTV
Greater
than 95.0
|
|
|
|
|
|
|
|
|
Traditional Primary(b):
|
|
|
|
|
|
|
|
As of December 31:
|
|
|
|
|
|
|
|
2013
|
4.2
|
%
|
|
34.5
|
%
|
|
32.2
|
%
|
|
29.1
|
%
|
2014
|
3.9
|
|
|
34.2
|
|
|
31.5
|
|
|
30.4
|
|
2015
|
3.8
|
|
|
33.5
|
|
|
30.9
|
|
|
31.8
|
|
As of September 30:
|
|
|
|
|
|
|
|
2015
|
3.7
|
|
|
33.7
|
|
|
31.0
|
|
|
31.6
|
|
2016
|
3.8
|
%
|
|
32.6
|
%
|
|
30.7
|
%
|
|
32.9
|
%
|
|
|
|
|
|
|
|
|
Bulk(a):
|
|
|
|
|
|
|
|
As of December 31:
|
|
|
|
|
|
|
|
2013
|
56.9
|
%
|
|
23.4
|
%
|
|
10.2
|
%
|
|
9.5
|
%
|
2014
|
52.5
|
|
|
25.8
|
|
|
11.1
|
|
|
10.6
|
|
2015
|
48.3
|
|
|
28.0
|
|
|
11.9
|
|
|
11.8
|
|
As of September 30:
|
|
|
|
|
|
|
|
2015
|
48.8
|
|
|
27.8
|
|
|
11.7
|
|
|
11.7
|
|
2016
|
47.1
|
%
|
|
28.7
|
%
|
|
12.1
|
%
|
|
12.1
|
%
|
__________
|
|
(a)
|
Bulk pool risk in-force, which represented
14.8%
of total bulk risk in-force at
September 30, 2016
, has been allocated pro-rata based on insurance in-force.
|
|
|
(b)
|
The LTV distribution reflects base LTV ratios which are determined prior to the impact of single premiums financed and paid at the time of loan origination.
|
Risk in Force Distribution By Top Ten States:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Traditional Primary
|
|
TX
|
|
FL
|
|
GA
|
|
IL
|
|
CA
|
|
NC
|
|
PA
|
|
NJ
|
|
VA
|
|
MD
|
As of December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
8.3
|
%
|
|
7.5
|
%
|
|
5.5
|
%
|
|
5.2
|
%
|
|
4.9
|
%
|
|
4.8
|
%
|
|
4.4
|
%
|
|
3.8
|
%
|
|
3.2
|
%
|
|
2.9
|
%
|
2014
|
7.8
|
|
|
7.3
|
|
|
5.7
|
|
|
5.3
|
|
|
4.9
|
|
|
4.8
|
|
|
4.3
|
|
|
4.0
|
|
|
3.4
|
|
|
3.0
|
|
2015
|
7.1
|
|
|
7.5
|
|
|
5.9
|
|
|
5.5
|
|
|
4.9
|
|
|
4.7
|
|
|
4.3
|
|
|
4.2
|
|
|
3.4
|
|
|
3.4
|
|
As of September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
7.2
|
|
|
7.4
|
|
|
5.8
|
|
|
5.4
|
|
|
4.9
|
|
|
4.7
|
|
|
4.3
|
|
|
4.2
|
|
|
3.4
|
|
|
3.4
|
|
2016
|
6.6
|
%
|
|
7.7
|
%
|
|
5.9
|
%
|
|
5.7
|
%
|
|
4.9
|
%
|
|
4.6
|
%
|
|
4.3
|
%
|
|
4.4
|
%
|
|
3.5
|
%
|
|
3.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bulk (a)
|
|
TX
|
|
FL
|
|
GA
|
|
IL
|
|
CA
|
|
AZ
|
|
PA
|
|
NJ
|
|
OH
|
|
NY
|
As of December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
5.4
|
%
|
|
9.3
|
%
|
|
4.4
|
%
|
|
3.9
|
%
|
|
14.1
|
%
|
|
2.8
|
%
|
|
3.4
|
%
|
|
4.0
|
%
|
|
3.8
|
%
|
|
7.9
|
%
|
2014
|
5.3
|
|
|
9.3
|
|
|
4.6
|
|
|
4.0
|
|
|
13.0
|
|
|
2.7
|
|
|
3.5
|
|
|
4.4
|
|
|
4.0
|
|
|
7.6
|
|
2015
|
5.1
|
|
|
8.9
|
|
|
4.7
|
|
|
4.0
|
|
|
12.8
|
|
|
2.8
|
|
|
3.6
|
|
|
4.4
|
|
|
4.2
|
|
|
7.4
|
|
As of September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
5.1
|
|
|
8.9
|
|
|
4.7
|
|
|
4.1
|
|
|
12.9
|
|
|
2.7
|
|
|
3.6
|
|
|
4.4
|
|
|
4.2
|
|
|
7.4
|
|
2016
|
5.2
|
%
|
|
8.7
|
%
|
|
4.8
|
%
|
|
4.2
|
%
|
|
12.4
|
%
|
|
2.8
|
%
|
|
3.6
|
%
|
|
4.3
|
%
|
|
4.2
|
%
|
|
7.5
|
%
|
|
|
|
|
|
|
|
Risk in Force Distribution By Level of Documentation:
|
Full
Documentation
|
|
Reduced
Documentation
|
Traditional Primary:
|
|
|
|
As of December 31:
|
|
|
|
2013
|
92.7
|
%
|
|
7.3
|
%
|
2014
|
92.7
|
|
|
7.3
|
|
2015
|
92.6
|
|
|
7.4
|
|
As of September 30:
|
|
|
|
2015
|
92.5
|
|
|
7.5
|
|
2016
|
92.5
|
%
|
|
7.5
|
%
|
|
|
|
|
Bulk (a):
|
|
|
|
As of December 31:
|
|
|
|
2013
|
57.6
|
%
|
|
42.4
|
%
|
2014
|
62.3
|
|
|
37.7
|
|
2015
|
66.6
|
|
|
33.4
|
|
As of September 30:
|
|
|
|
2015
|
66.4
|
|
|
33.6
|
|
2016
|
67.7
|
%
|
|
32.3
|
%
|
__________
|
|
(a)
|
Bulk pool risk in-force, which represented
14.8%
of total bulk risk in-force at
September 30, 2016
, has been allocated pro-rata based on insurance in-force.
|
|
|
|
|
|
|
|
Risk in Force Distribution By Loan Type:
|
Fixed Rate
& ARMs
with Resets
>=5 Years
|
|
ARMs with
Resets <5
years
|
Traditional Primary:
|
|
|
|
As of December 31:
|
|
|
|
2013
|
97.2
|
%
|
|
2.8
|
%
|
2014
|
97.2
|
|
|
2.8
|
|
2015
|
97.3
|
|
|
2.7
|
|
As of September 30:
|
|
|
|
2015
|
97.3
|
|
|
2.7
|
|
2016
|
97.2
|
%
|
|
2.8
|
%
|
|
|
|
|
Bulk (a):
|
|
|
|
As of December 31:
|
|
|
|
2013
|
74.3
|
%
|
|
25.7
|
%
|
2014
|
72.4
|
|
|
27.6
|
|
2015
|
71.8
|
|
|
28.2
|
|
As of September 30:
|
|
|
|
2015
|
71.9
|
|
|
28.1
|
|
2016
|
71.4
|
%
|
|
28.6
|
%
|
__________
|
|
(a)
|
Bulk pool risk in-force, which represented
14.8%
of total bulk risk in-force at
September 30, 2016
, has been allocated pro-rata based on insurance in-force.
|
The Company's consumer credit indemnity ("CCI") earned premiums and related risk in force included in the table below have reflected a generally declining trend. The decline is largely due to a discontinuation of active sales efforts since 2008. The following table shows CCI net premiums earned during the indicated periods and the maximum calculated risk in force at the end of the respective periods. Net earned premiums include additional premium adjustments arising from the variable claim experience of individual policies subject to retrospective rating plans. Risk in force reflects estimates of the maximum risk exposures at the inception of individual policies adjusted for cumulative claim costs and the lower outstanding loan balances attributed to such policies through the end of the periods shown below.
|
|
|
|
|
|
|
|
|
|
Net CCI Earned Premiums
|
|
Risk in
Force
|
Years Ended December 31:
|
|
|
|
2013
|
$
|
29.8
|
|
|
$
|
989.4
|
|
2014
|
27.7
|
|
|
858.5
|
|
2015
|
23.9
|
|
|
776.9
|
|
Nine Months Ended September 30:
|
|
|
|
2015
|
18.0
|
|
|
798.2
|
|
2016
|
11.2
|
|
|
$
|
720.5
|
|
Quarters Ended September 30:
|
|
|
|
2015
|
6.3
|
|
|
|
2016
|
$
|
3.7
|
|
|
|
|
|
Revenues: Net Investment Income
|
Net investment income is affected by trends in interest and dividend yields for the types of securities in which the Company's funds are invested during each reporting period. The following tables reflect the segmented and consolidated invested asset bases as of the indicated dates, and the investment income earned and resulting yields on such assets. Since the Company can exercise little control over fair values, yields are evaluated on the basis of investment income earned in relation to the cost of the underlying invested assets, though yields based on the fair values of such assets are also shown in the statistics below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Invested Assets at Cost
|
|
Fair
Value
Adjust-
ment
|
|
Invested
Assets at
Fair
Value (a)
|
|
General
|
|
Title
|
|
RFIG Run-off
|
|
Corporate
and Other
|
|
Total
|
|
As of December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014
|
$
|
7,962.3
|
|
|
$
|
915.0
|
|
|
$
|
923.2
|
|
|
$
|
691.7
|
|
|
$
|
10,492.3
|
|
|
$
|
576.4
|
|
|
$
|
11,068.8
|
|
2015
|
8,667.4
|
|
|
1,010.5
|
|
|
792.0
|
|
|
562.3
|
|
|
11,032.4
|
|
|
193.0
|
|
|
11,225.5
|
|
As of September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
8,418.4
|
|
|
975.0
|
|
|
814.4
|
|
|
694.3
|
|
|
10,902.2
|
|
|
233.6
|
|
|
11,135.9
|
|
2016
|
$
|
9,056.0
|
|
|
$
|
1,047.3
|
|
|
$
|
705.8
|
|
|
$
|
1,090.8
|
|
|
$
|
11,899.5
|
|
|
$
|
732.2
|
|
|
$
|
12,631.7
|
|
__________
(a) The
September 30, 2016
and December 31, 2015 amounts include $766.7 and $359.7, respectively, (fair value) fixed maturity securities classified as held to maturity which are reported and reflected herein at amortized cost of $748.5 and $355.8, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Investment Income
|
|
Yield at
|
|
General
|
|
Title
|
|
RFIG Run-off
|
|
Corporate
and Other
|
|
Total
|
|
Cost
|
|
Fair
Value
|
Years Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
$
|
249.6
|
|
|
$
|
26.6
|
|
|
$
|
36.8
|
|
|
$
|
5.6
|
|
|
$
|
318.7
|
|
|
3.17
|
%
|
|
2.97
|
%
|
2014
|
278.8
|
|
|
29.9
|
|
|
27.5
|
|
|
9.2
|
|
|
345.5
|
|
|
3.33
|
|
|
3.15
|
|
2015
|
312.1
|
|
|
34.0
|
|
|
25.1
|
|
|
17.2
|
|
|
388.6
|
|
|
3.61
|
|
|
3.49
|
|
Nine Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
231.6
|
|
|
24.8
|
|
|
19.0
|
|
|
13.3
|
|
|
288.9
|
|
|
3.60
|
|
|
3.47
|
|
2016
|
233.6
|
|
|
27.0
|
|
|
17.5
|
|
|
8.8
|
|
|
287.0
|
|
|
3.34
|
|
|
3.21
|
|
Quarters Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
83.1
|
|
|
8.9
|
|
|
6.4
|
|
|
5.7
|
|
|
104.2
|
|
|
3.86
|
|
|
3.74
|
|
2016
|
$
|
77.2
|
|
|
$
|
8.9
|
|
|
$
|
5.7
|
|
|
$
|
3.7
|
|
|
$
|
95.7
|
|
|
3.32
|
%
|
|
3.12
|
%
|
|
|
Revenues: Net Realized Gains (Losses)
|
The Company's investment policies are not designed to maximize or emphasize the realization of investment gains. Rather, these policies aim for a stable source of income from interest and dividends, protection of capital, and the providing of sufficient liquidity to meet insurance underwriting and other obligations as they become payable in the future. Dispositions of fixed maturity securities generally arise from scheduled maturities and early calls; for the
first nine months
of
2016
and
2015
,
71.7%
and
70.0%
, respectively, of all such dispositions resulted from these occurrences. Dispositions of securities at a realized gain or loss reflect such factors as ongoing assessments of issuers' business prospects, allocation to industry sectors, changes in credit quality, and tax planning considerations. Additionally, the amount of net realized gains and losses registered in any one accounting period are affected by the aforementioned assessments of securities' values for other-than-temporary impairment. As a result of the interaction of all these factors and considerations, net realized investment gains or losses can vary significantly from period-to-period, and, in the Company's view, are not indicative of any particular trend or result in the basics of its insurance business.
The following table reflects the composition of net realized gains or losses for the periods shown. The 2013 gains on equity securities generally reflect the recovery of value realized upon subsequent sale of common stocks originally impaired in 2008. Gains realized in 2014 reflect sales of non-income producing or low yielding securities, the proceeds of which have largely been reinvested in higher yielding common shares of American companies with distinguished long-term records of earnings and dividend growth.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized Gains (Losses) on
Disposition of Securities
|
|
Impairment Losses on Securities
|
|
|
|
Fixed
maturity
securities
|
|
Equity
securities
and miscel-
laneous
investments
|
|
Total
|
|
Fixed
maturity
securities
|
|
Equity
securities
and miscel-
laneous
investments
|
|
Total
|
|
Net
realized
gains
(losses)
|
Years Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
$
|
1.7
|
|
|
$
|
146.3
|
|
|
$
|
148.1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
148.1
|
|
2014
|
27.0
|
|
|
245.2
|
|
|
272.3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
272.3
|
|
2015
|
16.3
|
|
|
75.0
|
|
|
91.3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
91.3
|
|
Nine Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
10.8
|
|
|
66.1
|
|
|
77.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
77.0
|
|
2016
|
3.6
|
|
|
59.4
|
|
|
63.1
|
|
|
(4.9
|
)
|
|
—
|
|
|
(4.9
|
)
|
|
58.1
|
|
Quarters Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
3.1
|
|
|
38.3
|
|
|
41.4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
41.4
|
|
2016
|
$
|
(2.6
|
)
|
|
$
|
14.9
|
|
|
$
|
12.2
|
|
|
$
|
(4.9
|
)
|
|
$
|
—
|
|
|
$
|
(4.9
|
)
|
|
$
|
7.2
|
|
|
|
Expenses: Benefits and Claims
|
The Company records the benefits, claims and related settlement costs that have been incurred during each accounting period. Total claim costs are affected by the amount of paid claims and the adequacy of reserve estimates established for current and prior years' claim occurrences at each balance sheet date.
The following table shows a breakdown of gross and net of reinsurance claim reserve estimates for major types of insurance coverages as of
September 30, 2016
and
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Claim and Loss Adjustment Expense Reserves
|
|
|
|
|
September 30, 2016
|
|
December 31, 2015
|
|
|
|
|
Gross
|
|
Net
|
|
Gross
|
|
Net
|
|
|
|
|
|
|
|
|
Workers' compensation
|
$
|
4,590.8
|
|
|
$
|
2,867.9
|
|
|
$
|
4,460.0
|
|
|
$
|
2,774.4
|
|
General liability
|
1,322.7
|
|
|
686.8
|
|
|
1,341.0
|
|
|
703.0
|
|
Commercial automobile (mostly trucking)
|
1,396.7
|
|
|
1,107.0
|
|
|
1,291.0
|
|
|
1,049.2
|
|
Other coverages
|
496.2
|
|
|
361.8
|
|
|
490.6
|
|
|
352.2
|
|
Unallocated loss adjustment expense reserves
|
200.2
|
|
|
181.1
|
|
|
191.4
|
|
|
174.0
|
|
|
|
Total general insurance reserves
|
8,006.9
|
|
|
5,204.8
|
|
|
7,774.3
|
|
|
5,053.1
|
|
Title
|
614.4
|
|
|
614.4
|
|
|
580.8
|
|
|
580.8
|
|
RFIG Run-off
|
603.2
|
|
|
603.1
|
|
|
737.9
|
|
|
736.7
|
|
Life and accident
|
22.3
|
|
|
14.2
|
|
|
27.0
|
|
|
16.9
|
|
|
|
Total claim and loss adjustment expense reserves
|
$
|
9,247.0
|
|
|
$
|
6,436.7
|
|
|
$
|
9,120.1
|
|
|
$
|
6,387.6
|
|
Asbestosis and environmental claim reserves included
|
|
|
|
|
|
|
|
|
in the above general insurance reserves:
|
|
|
|
|
|
|
|
|
|
Amount
|
$
|
123.5
|
|
|
$
|
97.7
|
|
|
$
|
130.9
|
|
|
$
|
100.6
|
|
|
|
% of total general insurance reserves
|
1.5
|
%
|
|
1.9
|
%
|
|
1.7
|
%
|
|
2.0
|
%
|
Changes in aggregate claim and loss adjustment expense reserve estimates are shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
2016
|
|
2015
|
Net reserve increase (decrease):
|
|
|
|
|
|
General Insurance
|
|
|
$
|
151.7
|
|
|
$
|
274.4
|
|
Title Insurance
|
|
|
33.6
|
|
|
38.5
|
|
RFIG Run-off
|
|
|
(133.5
|
)
|
|
(104.6
|
)
|
Other
|
|
|
(2.6
|
)
|
|
(2.0
|
)
|
Total
|
|
|
$
|
49.1
|
|
|
$
|
206.2
|
|
Net reserves for claims that have been incurred but not yet reported ("IBNR") carried in each segment were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
December 31,
|
|
|
|
2016
|
|
2015
|
General Insurance
|
|
|
$
|
2,424.2
|
|
|
$
|
2,324.3
|
|
Title Insurance
|
|
|
538.2
|
|
|
503.8
|
|
RFIG Run-off
|
|
|
204.6
|
|
|
180.7
|
|
Other
|
|
|
5.2
|
|
|
6.4
|
|
Total
|
|
|
$
|
3,172.5
|
|
|
$
|
3,015.3
|
|
The Company's reserve for loss and loss adjustment expenses represents the accumulation of estimates of ultimate losses payable, including IBNR losses and loss adjustment 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 as further discussed below. Consequently, 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 and the resulting changes in estimates are recorded in operations of the periods during which they are made. Increases to prior reserve estimates are often referred to as unfavorable development whereas any changes that decrease previous estimates of the Company's ultimate liability are referred to as favorable development.
Overview of Loss Reserving Process
The Company's reserve setting process reflects the nature of its insurance business and the operationally decentralized basis upon which it is conducted. Old Republic's
general insurance
operations encompasses a large variety of lines or classes of commercial insurance; it has negligible exposure to personal lines such as homeowners or private passenger automobile insurance that exhibit wide diversification of risks, significant frequency of claim occurrences, and high degrees of statistical credibility. Additionally, the Company's insurance subsidiaries do not provide significant amounts of insurance protection for premises; most of its property insurance exposures relate to cargo, incidental property, and insureds' inland marine assets. Consequently, the wide variety of policies issued and commercial insurance customers served require that loss reserves be analyzed and established in the context of the unique or different attributes of each block or class of business produced by the Company. For example, accident liability claims emanating from insured trucking companies or from general aviation customers become known relatively quickly, whereas claims of a general liability nature arising from the building activities of a construction company may emerge over extended periods of time. Similarly, claims filed pursuant to errors and omissions or directors and officers liability coverages are usually not prone to immediate evaluation or quantification inasmuch as many such claims may be litigated over several years and their ultimate costs may be affected by the vagaries of judged or jury verdicts. Approximately
93%
of the
general insurance
group's claim reserves stem from liability insurance coverages for commercial customers which typically require more extended periods of investigation and at times protracted litigation before they are finally settled. As a consequence of these and other factors, Old Republic does not utilize a single, overarching loss reserving approach.
The Company prepares periodic analyses of its loss reserve estimates for its significant insurance coverages. It establishes point estimates for most losses on an insurance coverage line-by-line basis for individual subsidiaries, sub-classes, individual accounts, blocks of business or other unique concentrations of insurance risks such as directors and officers liability, that have similar attributes. Actuarially or otherwise derived ranges of reserve levels are not utilized as such in setting these reserves. Instead the reported reserves encompass the Company's best point estimates at each reporting date and the overall reserve level at any point in time therefore represents the compilation of a very large number of reported reserve estimates and the results of a variety of formula calculations largely driven by statistical analysis of historical data. Reserve releases or additions are implicitly covered by the point estimates incorporated in total reserves at each balance sheet date. The Company does not project future variability or make an explicit provision for uncertainty when determining its best estimate of loss reserves. Over the most recent decade actual incurred losses have developed within a reasonable range of their original estimates.
Aggregate loss reserves consist of liability estimates for claims that have been reported ("case") to the Company's insurance subsidiaries and reserves for claims that have been incurred but not yet reported or whose ultimate costs may not become fully apparent until a future time. Additionally, the Company establishes unallocated loss adjustment expense reserves for loss settlement costs that are not directly related to individual claims. Such reserves are based on prior years' cost experience and trends, and are intended to cover the unallocated costs of claim departments' administration of case and IBNR claims over time. Long-term, disability-type workers' compensation reserves are discounted to present value based on interest rates that range from 3.5% to 4.0%.
A large variety of statistical analyses and formula calculations are utilized to provide for IBNR claim costs as well as additional costs that can arise from such factors as monetary and social inflation, changes in claims administration processes, changes in reinsurance ceded and recoverability levels, and expected trends in claim costs and related ratios. Typically, such formulas take into account so-called link ratios that represent prior years' patterns of incurred or paid loss trends between succeeding years, or past experience relative to progressions of the number of claims reported over time and ultimate average costs per claim.
Overall, reserves pertaining to several hundred large individual commercial insurance accounts that exhibit sufficient statistical credibility, and at times may be subject to retrospective premium rating plans or the utilization of varying levels or types of self-insured retentions through captive insurers and similar risk management mechanisms are established on an account by account basis using case reserves and applicable formula-driven methods. Large account reserves
are usually set and analyzed for groups of coverages such as workers' compensation, commercial auto and general liability that are typically underwritten jointly for many customers. For certain so-called long-tail categories of insurance such as retained or assumed excess liability or excess workers' compensation, officers and directors' liability, and commercial umbrella liability relative to which claim development patterns are particularly long, more volatile, and immature in their early stages of development, the Company judgmentally establishes the most current accident years' loss reserves on the basis of expected loss ratios. Such expected loss ratios typically reflect currently estimated loss ratios from prior accident years, adjusted for the effect of actual and anticipated rate changes, actual and anticipated changes in coverage, reinsurance, mix of business, and other anticipated changes in external factors such as trends in loss costs or the legal and claims environment. Expected loss ratios are generally used for the two to three most recent accident years depending on the individual class or category of business. As actual claims data emerges in succeeding interim and annual periods, the original accident year loss ratio assumptions are validated or otherwise adjusted sequentially through the application of statistical projection techniques such as the Bornhuetter/Ferguson method which utilizes data from the more mature experience of prior years to arrive at a likely indication of more recent years' loss trends and costs.
Title insurance
and related escrow services loss and loss adjustment expense reserves are established as point estimates to cover the projected settlement costs of known as well as IBNR losses related to premium and escrow service revenues of each reporting period. Reserves for known claims are based on an assessment of the facts available to the Company during the settlement process. The point estimates covering all claim reserves take into account IBNR claims based on past experience and evaluations of such variables as changing trends in the types of policies issued, changes in real estate markets and interest rate environments, and changing levels of loan refinancing, all of which can have a bearing on the emergence, number, and ultimate costs of claims.
RFIG Run-off
mortgage guaranty
insurance
reserves for unpaid claims and claim adjustment expenses are recognized only upon an instance of default, defined as an insured mortgage loan for which two or more consecutive monthly payments have been missed. Loss reserves are based on statistical calculations that take into account the number of reported insured mortgage loan defaults as of each balance sheet date, as well as experience-based estimates of loan defaults that have occurred but have not as yet been reported. Further, the loss reserve estimating process takes into account a large number of variables including trends in claim severity, potential salvage recoveries, expected cure rates for reported loan delinquencies at various stages of default, the level of coverage rescissions and claims denials due to material misrepresentation in key underwriting information or non-compliance with prescribed underwriting guidelines, and management judgments relative to future employment levels, housing market activity, and mortgage loan interest costs, demand, and extensions.
The Company has the legal right to rescind mortgage insurance coverage unilaterally as expressly stated in its policy. Moreover, two federal courts that have considered that policy wording have each affirmed that right (See
First Tennessee Bank N.A.
v.
Republic Mortg. Ins. Co.
, Case No. 2:10-cv-02513-JPM-cgc (W.D. Tenn., Feb. 25, 2011) and
JPMorgan Chase Bank N.A.
v.
Republic Mortg. Ins. Co.
, Civil Action No. 10-06141 (SRC) (D. NJ, May 4, 2011), each decision citing supporting state law legal precedent). RMIC's mortgage insurance policy provides that
the insured represents that
a
ll statements made and information provided to it in an application for coverage for a loan, without regard to who made the statements or provided the information, have been made and presented for and on behalf of the insured; and that
s
uch statements and information are neither false nor misleading in any material respect, nor omit any fact necessary to make such statements and information not false or misleading in any material respect. According to the policy, if any of those representations are materially false or misleading with respect to a loan, the Company has the right to cancel or rescind coverage for that loan retroactively to commencement of the coverage. Whenever the Company determines that an application contains a material misrepresentation, it either advises the insured in writing of its findings prior to rescinding coverage or exercises its unilateral right to rescind coverage for that loan, stating the reasons for that action in writing and returning the applicable premium. The rescission of coverage in instances of materially faulty representations or warranties provided in applications
for insurance is a necessary and prevailing practice throughout the insurance industry. In the case of mortgage guaranty insurance, rescissions have occurred regularly over the years but have been generally immaterial. Since 2008, however, the Company has experienced a much greater incidence of rescissions due to increased levels of observed fraud and misrepresentations in insurance applications pertaining to business underwritten between 2004 and the first half of 2008. As a result, the Company has incorporated certain assumptions regarding the expected levels of coverage rescissions and claim denials in its reserving methodology since 2008. Such estimates, which are evaluated at each balance sheet date, take into account observed as well as historical trends in rescission and denial rates. The table below shows the estimated effects of coverage rescissions and claim denials on loss reserves and settled and incurred losses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
September 30,
|
|
December 31,
|
|
December 31,
|
|
2016
|
|
2015
|
|
2015
|
|
2014
|
Estimated reduction in beginning reserve
|
$
|
47.5
|
|
|
$
|
79.3
|
|
|
$
|
79.3
|
|
|
$
|
115.2
|
|
Total incurred claims and settlement expenses
|
|
|
|
|
|
|
|
reduced (increased) by changes in
|
|
|
|
|
|
|
|
estimated rescissions:
|
|
|
|
|
|
|
|
Current year
|
6.3
|
|
|
16.2
|
|
|
18.8
|
|
|
47.1
|
|
Prior year
|
(14.8
|
)
|
|
(10.2
|
)
|
|
(17.6
|
)
|
|
10.4
|
|
Sub-total
|
(8.5
|
)
|
|
6.0
|
|
|
1.2
|
|
|
57.6
|
|
Estimated rescission reduction in settled claims
|
(9.1
|
)
|
|
(30.2
|
)
|
|
(33.0
|
)
|
|
(93.5
|
)
|
Estimated reduction in ending reserve
|
$
|
29.9
|
|
|
$
|
55.1
|
|
|
$
|
47.5
|
|
|
$
|
79.3
|
|
As noted above, the estimated reduction in ending loss reserves reflects, in large measure, a variety of judgments relative to the level of expected coverage rescissions and claim denials on loans that are in default as of each balance sheet date. The provision for insured events of the current year resulted from actual and anticipated rescissions and claim denials attributable to newly reported delinquencies in each respective year. The provision for insured events of prior years resulted from actual rescission and claim denial activity or revisions in assumptions regarding expected rescission or claim denial rates on outstanding prior year delinquencies. The trends since 2010 reflect a continuing reduction in the level of actual and anticipated rescission and claim denial rates on total outstanding delinquencies. Claims not paid by virtue of rescission or denial represent the Company's estimated contractual risk, before consideration of the impacts of any reinsurance and deductibles or aggregate loss limits, on cases that are settled by the issuance of a rescission or denial notification. Variances between the estimated rescission and actual claim denial rate are reflected in the periods during which they occur.
Although the insured has no right under the policy to appeal a Company claim decision, the insured may, at any time, contest in writing the Company's findings or action with respect to a loan or a claim. In such cases, the Company considers any additional information supplied by the insured. This consideration may lead to further investigation, retraction or confirmation of the initial determination. If the Company concludes that it will reinstate coverage, it advises the insured in writing that it will do so immediately upon receipt of the premium previously returned. Reserves are not adjusted for potential reversals of rescissions or adverse rulings for loans under dispute since such reversals of claim rescissions and denials have historically been immaterial to the reserve estimation process.
Incurred Loss Experience
Management believes that the Company's overall reserving practices have been consistently applied over many years. For at least the past ten years, previously established aggregate reserves have produced reasonable estimates of the cumulative ultimate net costs of claims incurred. However, there are no guarantees that such outcomes will continue, and, accordingly, no representation is made that ultimate net claim and related costs will not develop in future years to be greater or lower than currently established reserve estimates. In management's opinion, however, such potential development is not likely to have a material effect on the Company's consolidated financial position, although it could affect materially its consolidated results of operations for any one annual or interim reporting period. See further discussion in the Company's
2015
Annual Report on Form 10-K under Item 1A - Risk Factors.
The percentage of net claims, benefits and related settlement expenses incurred as a percentage of premiums and related fee revenues of the Company's three major operating segments and for consolidated operations were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
|
|
Title
|
|
RFIG Run-off
|
|
Consolidated
|
Years Ended December 31:
|
|
|
|
|
|
|
|
2013
|
73.6
|
%
|
|
6.7
|
%
|
|
68.8
|
%
|
|
45.8
|
%
|
2014
|
77.9
|
|
|
5.2
|
|
|
97.2
|
|
|
52.3
|
|
2015
|
74.1
|
|
|
4.9
|
|
|
88.0
|
|
|
47.5
|
|
Nine Months Ended September 30:
|
|
|
|
|
|
|
|
2015
|
73.6
|
|
|
5.4
|
|
|
88.4
|
|
|
47.8
|
|
2016
|
72.8
|
|
|
5.2
|
|
|
54.9
|
|
|
44.9
|
|
Quarters Ended September 30:
|
|
|
|
|
|
|
|
2015
|
73.8
|
|
|
5.6
|
|
|
124.7
|
|
|
47.9
|
|
2016
|
73.5
|
%
|
|
5.2
|
%
|
|
57.2
|
%
|
|
43.6
|
%
|
The percentage of net claims, benefits and related settlement expenses measured against premiums earned by major types of
general insurance
coverage were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Insurance Claim Ratios by Type of Coverage
|
|
All
Coverages
|
|
Commercial
Automobile
(mostly
trucking)
|
|
Workers'
Compen-sation
|
|
Financial
Indemnity
|
|
Inland
Marine
and
Property
|
|
General
Liability
|
|
Other
|
Years Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
73.6
|
%
|
|
76.1
|
%
|
|
79.6
|
%
|
|
21.4
|
%
|
|
59.6
|
%
|
|
78.5
|
%
|
|
67.8
|
%
|
2014
|
77.9
|
|
|
74.0
|
|
|
89.2
|
|
|
25.6
|
|
|
65.7
|
|
|
88.2
|
|
|
67.8
|
|
2015
|
74.1
|
|
|
77.8
|
|
|
80.7
|
|
|
39.1
|
|
|
57.0
|
|
|
76.8
|
|
|
60.4
|
|
Nine Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
73.6
|
|
|
77.0
|
|
|
79.8
|
|
|
39.3
|
|
|
56.2
|
|
|
76.1
|
|
|
61.3
|
|
2016
|
72.8
|
|
|
80.2
|
|
|
74.7
|
|
|
44.6
|
|
|
59.0
|
|
|
76.8
|
|
|
62.8
|
|
Quarters Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
73.8
|
|
|
76.1
|
|
|
77.6
|
|
|
37.6
|
|
|
60.4
|
|
|
93.3
|
|
|
61.2
|
|
2016
|
73.5
|
%
|
|
81.7
|
%
|
|
73.3
|
%
|
|
40.6
|
%
|
|
58.7
|
%
|
|
80.2
|
%
|
|
65.1
|
%
|
The
general insurance
claim ratios were reasonably stable for the respective quarterly and nine month periods of 2016. The overall claims ratio for the past three years remained at relatively high levels as workers' compensation and general liability loss costs continued to reflect greater-than-expected severity. For the 2015 periods, commercial automobile insurance experienced greater frequency and severity of claims while workers' compensation and general liability insurance loss costs subsided somewhat from 2014's higher levels. Claims are a major cost factor and changes in them reflect continually evolving pricing and risk selection together with changes in loss severity and frequency.
During the three most recent calendar years, the
general insurance
group experienced unfavorable developments of prior year loss reserves for 2015 and 2014 and favorable development for 2013. The effect was to increase the claim ratio by 1.5 and 3.9 percentage points in 2015 and 2014, respectively. By contrast, 2013 loss development reduced the claim ratio by .9 percentage point. During 2015 and 2014, the General Insurance Group experienced unfavorable developments of previously established reserves for accidents or events which occurred in 2011 and prior years in particular. These adverse developments were concentrated in workers' compensation and general liability case reserves and resulted from settlements or reserve additions exceeding the previously established indemnity and/or allocated loss adjustment expense provisions. The favorable developments for 2013 is primarily due to the commercial automobile, general aviation, and the E&O/D&O (financial indemnity) lines of business; these were partially offset by unfavorable development in workers' compensation and general liability coverages and by ongoing development of asbestos and environmental ("A&E") claim reserves. The 2016 claim ratios were largely unaffected by developments of prior years' reserves. By contrast, claim ratios for the corresponding periods of 2015 were inclusive of a 1.0 percentage point addition arising from unfavorable developments of previously established reserves.
Unfavorable A&E claim developments, although not material in any of the periods presented, are typically attributable to A&E claim reserves due to periodic re-evaluations of such reserves as well as subsequent reclassifications of other coverages' reserves, most often workers' compensation, deemed assignable to A&E category of losses. Except for a small portion that emanates from ongoing primary insurance operations, a large majority of the A&E claim reserves posted by Old Republic stem mainly from its participations in assumed reinsurance treaties and insurance pools which were discontinued during the 1980's and have since been in run-off status. With respect to the primary portion of gross A&E reserves, Old Republic administers the related claims through its claims personnel as well as outside attorneys, and posted reserves reflect its best estimates of ultimate claim costs. Claims administration for the assumed portion of the Company's A&E exposures is handled by the claims departments of unrelated primary or ceding reinsurance companies. While the Company performs periodic reviews of certain claim files managed by third parties, the overall A&E reserves it establishes respond to the paid claim and case reserve activity reported to the Company as well as available industry statistical data such as so-called survival ratios. Such ratios represent the number of years' average paid losses for the three or five most recent calendar years that are encompassed by an insurer's A&E reserve level at any point in time. According to this simplistic appraisal of an insurer's A&E loss reserve level, Old Republic's average five year survival ratios stood at
4.4
years (gross) and
6.2
years (net of reinsurance) as of
September 30, 2016
and
4.7
years (gross) and
6.2
years (net of reinsurance) as of
December 31, 2015
. Fluctuations in this ratio between years can be caused by the inconsistent pay out patterns associated with these types of claims. Incurred net losses for A&E claims have averaged .4% of
general insurance
group net incurred losses for the five years ended December 31, 2015.
Title insurance
loss ratios have remained in the single digits for a number of years due to a continuation of favorable trends in claims frequency and severity.
The
RFIG Run-off mortgage guaranty
2015 claim ratio was adversely affected by greater provisions for disputed claims in litigation. Excluding the affects of the litigation expense provisions, the claim ratios continued to decline due to the combined effects of further reductions in newly reported defaults and a rising rate at which previously reported defaults have cured or otherwise been resolved without payment. These factors led to highly favorable developments of prior year-end claim reserves during 2015, 2014 and 2013. Setting aside the aforementioned litigation expense provisions in 2015, these favorable reserve developments accounted for reductions of 65.0, 69.3 and 88.2 percentage points in the reported claim ratio for years ended December 31, 2015, 2014 and 2013, respectively. Year-over-year comparisons of
the 2016 and 2015 MI claim ratio were positive. The lower ratios for both 2016 periods were attributable to continued declines in reported delinquencies and higher rates at which reported defaults are cured or otherwise resolved without payment. Moreover, 2016 MI claims costs were less affected by litigation expense provisions that impacted adversely the 2015 claim ratio. Favorable developments of previously established claim reserves lowered claim ratios by 52.2 and 44.0 percentage points in the third quarter and first nine months of 2016, respectively. The reductions amounted to 56.5 and 72.7 percentage points for the respective periods of 2015.
The
RFIG Run-off CCI
business loss costs and resultant claim ratios reflect greater volatility due to the impact of ongoing litigation costs. The 2016 and 2015 provisions, however, were much lower than that registered in 2014 when a litigated claim was settled in an amount greater than originally anticipated. 2013 CCI performance was most favorably affected by lower claim provisions resulting from improving delinquency trends and greater than anticipated claim salvage recoveries.
Certain
mortgage guaranty
average claims related trends are listed below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Settled Claim Amount (a)
|
|
Reported Delinquency
Ratio at End of Period
|
|
Claims
Rescissions
and
Denials
|
|
Traditional
Primary
|
|
Bulk
|
|
Traditional
Primary
|
|
Bulk
|
|
Years Ended December 31:
|
|
|
|
|
|
|
|
|
|
2013
|
$
|
44,678
|
|
|
$
|
46,395
|
|
|
13.09
|
%
|
|
18.73
|
%
|
|
$
|
212.2
|
|
2014
|
45,607
|
|
|
44,465
|
|
|
10.93
|
|
|
23.01
|
|
|
93.5
|
|
2015
|
45,745
|
|
|
46,669
|
|
|
10.45
|
|
|
26.74
|
|
|
33.0
|
|
Nine Months Ended September 30:
|
|
|
|
|
|
|
|
|
|
2015
|
45,189
|
|
|
46,716
|
|
|
10.38
|
|
|
24.44
|
|
|
30.2
|
|
2016
|
45,132
|
|
|
46,086
|
|
|
10.26
|
%
|
|
25.99
|
%
|
|
9.1
|
|
Quarters Ended September 30:
|
|
|
|
|
|
|
|
|
|
2015
|
46,216
|
|
|
43,822
|
|
|
|
|
|
|
7.5
|
|
2016
|
$
|
45,286
|
|
|
$
|
44,863
|
|
|
|
|
|
|
$
|
(.7
|
)
|
__________
|
|
(a)
|
Amounts are in whole dollars.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Traditional Primary Delinquency Ratios for Top Ten States (b):
|
|
TX
|
|
FL
|
|
GA
|
|
IL
|
|
CA
|
|
NC
|
|
PA
|
|
MD
|
|
NJ
|
|
VA
|
As of December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
8.0
|
%
|
|
25.9
|
%
|
|
11.2
|
%
|
|
16.6
|
%
|
|
9.6
|
%
|
|
10.3
|
%
|
|
14.1
|
%
|
|
19.8
|
%
|
|
26.3
|
%
|
|
9.2
|
%
|
2014
|
7.1
|
|
|
17.6
|
|
|
8.8
|
|
|
12.9
|
|
|
7.3
|
|
|
8.7
|
|
|
12.8
|
|
|
15.6
|
|
|
25.6
|
|
|
8.2
|
|
2015
|
7.7
|
|
|
13.5
|
|
|
8.4
|
|
|
10.8
|
|
|
6.1
|
|
|
8.6
|
|
|
12.2
|
|
|
13.3
|
|
|
25.0
|
|
|
8.5
|
|
As of September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
7.1
|
|
|
14.2
|
|
|
8.2
|
|
|
11.0
|
|
|
6.5
|
|
|
8.3
|
|
|
12.5
|
|
|
12.8
|
|
|
25.5
|
|
|
8.2
|
|
2016
|
8.3
|
%
|
|
11.8
|
%
|
|
8.3
|
%
|
|
10.7
|
%
|
|
5.7
|
%
|
|
7.8
|
%
|
|
12.2
|
%
|
|
13.1
|
%
|
|
23.5
|
%
|
|
8.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bulk Delinquency Ratios for Top Ten States (b):
|
|
TX
|
|
FL
|
|
GA
|
|
IL
|
|
CA
|
|
AZ
|
|
PA
|
|
OH
|
|
NJ
|
|
NY
|
As of December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
12.6
|
%
|
|
28.8
|
%
|
|
14.2
|
%
|
|
21.4
|
%
|
|
13.2
|
%
|
|
12.9
|
%
|
|
19.9
|
%
|
|
16.8
|
%
|
|
31.1
|
%
|
|
23.8
|
%
|
2014
|
15.9
|
|
|
30.0
|
|
|
16.5
|
|
|
25.0
|
|
|
18.1
|
|
|
13.3
|
|
|
25.8
|
|
|
16.0
|
|
|
46.5
|
|
|
43.4
|
|
2015
|
19.0
|
|
|
38.9
|
|
|
17.6
|
|
|
25.7
|
|
|
26.0
|
|
|
22.4
|
|
|
26.9
|
|
|
16.3
|
|
|
59.0
|
|
|
52.1
|
|
As of September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
18.9
|
|
|
30.7
|
|
|
14.7
|
|
|
26.2
|
|
|
20.2
|
|
|
16.9
|
|
|
28.3
|
|
|
16.1
|
|
|
58.9
|
|
|
53.8
|
|
2016
|
20.0
|
%
|
|
35.2
|
%
|
|
18.9
|
%
|
|
23.7
|
%
|
|
29.4
|
%
|
|
22.6
|
%
|
|
26.8
|
%
|
|
13.0
|
%
|
|
59.9
|
%
|
|
49.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Delinquency Ratios for Top Ten States (includes "other" business) (b):
|
|
TX
|
|
FL
|
|
GA
|
|
IL
|
|
CA
|
|
NC
|
|
PA
|
|
MD
|
|
NJ
|
|
NY
|
As of December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
8.4
|
%
|
|
26.4
|
%
|
|
11.5
|
%
|
|
17.0
|
%
|
|
10.7
|
%
|
|
10.8
|
%
|
|
14.6
|
%
|
|
19.6
|
%
|
|
27.1
|
%
|
|
22.8
|
%
|
2014
|
7.7
|
|
|
19.5
|
|
|
9.4
|
|
|
13.8
|
|
|
9.9
|
|
|
9.4
|
|
|
13.7
|
|
|
16.1
|
|
|
28.0
|
|
|
26.8
|
|
2015
|
8.3
|
|
|
15.9
|
|
|
8.8
|
|
|
11.5
|
|
|
9.3
|
|
|
9.0
|
|
|
13.0
|
|
|
14.2
|
|
|
27.4
|
|
|
28.4
|
|
As of September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
7.8
|
|
|
16.1
|
|
|
8.6
|
|
|
11.8
|
|
|
9.2
|
|
|
8.8
|
|
|
13.4
|
|
|
13.6
|
|
|
28.1
|
|
|
28.2
|
|
2016
|
9.0
|
%
|
|
13.7
|
%
|
|
8.8
|
%
|
|
11.3
|
%
|
|
8.9
|
%
|
|
8.3
|
%
|
|
13.0
|
%
|
|
13.8
|
%
|
|
25.8
|
%
|
|
27.1
|
%
|
__________
|
|
(b)
|
As determined by risk in force as of
September 30, 2016
, these 10 states represent approximately 51.4%, 57.8%, and 51.4%, of traditional primary, bulk, and total risk in force, respectively.
|
The following table shows CCI claims related trends for the periods shown:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported
Delinquency
Ratio at End
of Period
|
|
Claim
Rescissions
and Denials
|
|
CCI Claim Costs
|
|
|
|
Paid
|
|
Incurred
|
|
|
|
Amount
|
|
Ratio (a)
|
|
Amount
|
|
Ratio (a)
|
|
|
Years Ended
|
|
|
|
|
|
|
|
|
|
|
|
December 31:
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
$
|
48.5
|
|
|
162.9
|
%
|
|
$
|
44.5
|
|
|
149.4
|
%
|
|
2.6
|
%
|
|
$
|
54.4
|
|
2014
|
95.7
|
|
|
344.9
|
|
|
137.2
|
|
|
494.4
|
|
|
2.1
|
|
|
25.2
|
|
2015
|
35.6
|
|
|
148.8
|
|
|
83.0
|
|
|
346.9
|
|
|
2.1
|
|
|
19.1
|
|
Nine Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
September 30:
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
31.7
|
|
|
176.1
|
|
|
55.8
|
|
|
309.4
|
|
|
2.0
|
|
|
15.0
|
|
2016
|
9.4
|
|
|
84.2
|
|
|
37.8
|
|
|
337.3
|
|
|
1.8
|
%
|
|
8.8
|
|
Quarters Ended
|
|
|
|
|
|
|
|
|
|
|
|
September 30:
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
6.0
|
|
|
95.9
|
|
|
18.9
|
|
|
298.8
|
|
|
|
|
3.3
|
|
2016
|
$
|
2.4
|
|
|
64.3
|
%
|
|
$
|
8.9
|
|
|
238.1
|
%
|
|
|
|
$
|
2.0
|
|
__________
|
|
(a)
|
Percent of net CCI earned premiums. CCI claims ratios include only those costs actually or expected to be paid by the Company and exclude claims not paid by virtue of coverage rescissions and claims denials as well as unsubstantiated claim submissions. Certain claim rescissions and denials may from time to time become the subject of disagreements between the Company and certain individual insureds. Possible future reversals of such rescissions and denials, however, may not necessarily affect the adequacy of previously established claim reserve levels nor fully impact operating results. These effects could be fully or partially negated by the imposition of additional retrospective premiums and/or the limiting effects of maximum policy limits.
|
Reinsurance Programs
To maintain premium production within its capacity and limit maximum losses and risks for which it might become liable under its policies, Old Republic may cede a portion or all of its premiums and liabilities on certain classes of insurance, individual policies, or blocks of business to other insurers and reinsurers. Further discussion of the Company's reinsurance programs can be found in Part 1 of the Company's
2015
Annual Report on Form 10-K.
|
|
Expenses: Underwriting Acquisition and Other Expenses
|
The following table sets forth the expense ratios registered by each major business segment and in consolidation for the periods shown:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
|
|
Title
|
|
RFIG Run-off
|
|
Consolidated
|
Years Ended December 31:
|
|
|
|
|
|
|
|
2013
|
23.7
|
%
|
|
88.0
|
%
|
|
8.1
|
%
|
|
49.2
|
%
|
2014
|
22.9
|
|
|
90.4
|
|
|
9.5
|
|
|
47.1
|
|
2015
|
23.5
|
|
|
88.3
|
|
|
10.0
|
|
|
48.5
|
|
Nine Months Ended September 30:
|
|
|
|
|
|
|
|
2015
|
23.3
|
|
|
88.0
|
|
|
9.6
|
|
|
47.9
|
|
2016
|
24.9
|
|
|
88.3
|
|
|
12.3
|
|
|
50.2
|
|
Quarters Ended September 30:
|
|
|
|
|
|
|
|
2015
|
22.7
|
|
|
85.9
|
|
|
9.3
|
|
|
48.3
|
|
2016
|
24.6
|
%
|
|
86.1
|
%
|
|
11.7
|
%
|
|
50.8
|
%
|
Variations in the Company's consolidated expense ratios reflect a continually changing mix of coverages sold and attendant costs of producing business in the Company's three largest business segments. To a significant degree, expense ratios for both the general and title insurance segments are mostly reflective of variable costs, such as commissions or similar charges, that rise or decline along with corresponding changes in premium and fee income. Moreover, general operating expenses can contract or expand in differing proportions due to varying levels of operating efficiencies and expense management opportunities in the face of changing market conditions. Relatively higher expense ratios in 2016's periods resulted mostly from greater costs incurred for a start-up business, additional litigation cost provisions in this year's second quarter, and by a slightly different premium mix and attendant costs of production driven by the business’ responses to insurance market conditions as they occur throughout the year. The title insurance expense ratio for 2014 rose as operating costs contracted by a relatively lower percentage than the reduction in revenues. RFIG Run-off operating expense ratios reflect ongoing cost control geared to a run-off operation.
The composite underwriting ratios of the above summarized net claims, benefits and underwriting expenses that reflect the sum total of all the factors enumerated above have been as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
|
|
Title
|
|
RFIG Run-off
|
|
Consolidated
|
Years Ended December 31:
|
|
|
|
|
|
|
|
2013
|
97.3
|
%
|
|
94.7
|
%
|
|
76.9
|
%
|
|
95.0
|
%
|
2014
|
100.8
|
|
|
95.6
|
|
|
106.7
|
|
|
99.4
|
|
2015
|
97.6
|
|
|
93.2
|
|
|
98.0
|
|
|
96.0
|
|
Nine Months Ended September 30:
|
|
|
|
|
|
|
|
2015
|
96.9
|
|
|
93.4
|
|
|
98.0
|
|
|
95.7
|
|
2016
|
97.7
|
|
|
93.5
|
|
|
67.2
|
|
|
95.1
|
|
Quarters Ended September 30:
|
|
|
|
|
|
|
|
2015
|
96.5
|
|
|
91.5
|
|
|
134.0
|
|
|
96.2
|
|
2016
|
98.1
|
%
|
|
91.3
|
%
|
|
68.9
|
%
|
|
94.4
|
%
|
The effective consolidated income tax rates were 32.4% in both the third quarter and first nine months of 2016, compared to 31.8% and 32.4% in the third quarter and first nine months of 2015, respectively. The rates for each period reflect primarily the varying proportions of pretax operating income (loss) derived from partially tax sheltered investment income (principally tax-exempt interest and dividend income), the combination of fully taxable investment income, realized investment gains or losses, underwriting and service income, and judgments about the recoverability of deferred tax assets.
Reference is here made to "Information About Segments of Business" appearing elsewhere herein.
Historical data pertaining to the operating results, liquidity, and other performance indicators applicable to an insurance enterprise such as Old Republic are not necessarily indicative of results to be achieved in succeeding years. In addition to the factors cited below, the long-term nature of the insurance business, seasonal and annual patterns in premium production and incidence of claims, changes in yields obtained on invested assets, changes in government policies and free markets affecting inflation rates and general economic conditions, and changes in legal precedents or the application of law affecting the settlement of disputed and other claims can have a bearing on period-to-period comparisons and future operating results.
Some of the oral or written statements made in the Company's reports, press releases, and conference calls following earnings releases, can constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Of necessity, any such forward-looking statements involve assumptions, uncertainties, and risks that may affect the Company's future performance. With regard to Old Republic's General Insurance segment, its results can be affected, in particular, by the level of market competition, which is typically a function of available capital and expected returns on such capital among competitors, the levels of interest and inflation rates, and periodic changes in claim frequency and severity patterns caused by natural disasters, weather conditions, accidents, illnesses, work-related injuries, and unanticipated external events. Title Insurance and RFIG Run-off results can be affected by similar factors and by changes in national and regional housing demand and values, the availability and cost of mortgage loans, employment trends, and default rates on mortgage loans. Life and accident insurance earnings can be affected by the levels of employment and consumer spending, variations in mortality and health trends, and changes in policy lapsation rates. At the parent holding company level, operating earnings or losses are generally reflective of the amount of debt outstanding and its cost, interest income on temporary holdings of short-term investments, and period-to-period variations in the costs of administering the Company's widespread operations.
A more detailed listing and discussion of the risks and other factors which affect the Company's risk-taking insurance business are included in Part I, Item 1A - Risk Factors, of the Company's
2015
Annual Report to the Securities and Exchange Commission, which Item is specifically incorporated herein by reference.
Any forward-looking statements or commentaries speak only as of their dates. Old Republic undertakes no obligation to publicly update or revise any and all such comments, whether as a result of new information, future events or otherwise, and accordingly they may not be unduly relied upon.
OLD REPUBLIC INTERNATIONAL CORPORATION
|
|
|
|
Item 3 - Quantitative and Qualitative Disclosure About Market Risk
|
Market risk represents the potential for loss due to adverse changes in the fair value of financial instruments as a result of changes in interest rates, equity prices, foreign exchange rates and commodity prices. Old Republic's primary market risks consist of interest rate risk associated with investments in fixed maturities and equity price risk associated with investments in equity securities. The Company has no material foreign exchange or commodity risk.
Old Republic's market risk exposures at
September 30, 2016
, have not materially changed from those identified in the Company's
2015
Annual Report on Form 10-K.
Item 4 - Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company's principal executive officer and its principal accounting officer have evaluated the Company's disclosure controls and procedures as of the end of the period covered by this quarterly report. Based upon their evaluation, the principal executive officer and principal financial officer have concluded that the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) are effective for the above referenced evaluation period.
Changes in Internal Control
During the three month period ended
September 30, 2016
, there were no changes in internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
Management's Report on Internal Control Over Financial Reporting
The Company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
|
|
OLD REPUBLIC INTERNATIONAL CORPORATION
|
FORM 10-Q
|
PART II - OTHER INFORMATION
|
|
Item 1 - Legal Proceedings
The information contained in Note 6 "Commitments and Contingent Liabilities" of the Notes to Consolidated Financial Statements filed as Part 1 of this Quarterly Report on Form 10-Q is incorporated herein by reference.
Item 1A - Risk Factors
There have been no material changes with respect to the risk factors disclosed in the Company's
2015
Annual report on Form 10-K.
Item 6 - Exhibits
(a) Exhibits
|
|
|
|
|
31.1
|
|
|
Certification by Aldo C. Zucaro, Chief Executive Officer, pursuant to Rule 13a-14(a) and 15d-14(a), as
|
|
|
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
31.2
|
|
|
Certification by Karl W. Mueller, Chief Financial Officer, pursuant to Rule 13a-14(a) and 15d-14(a), as
|
|
|
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
32.1
|
|
|
Certification by Aldo C. Zucaro, Chief Executive Officer, pursuant to Section 1350, Chapter 63 of Title 18,
|
|
|
United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
32.2
|
|
|
Certification by Karl W. Mueller, Chief Financial Officer, pursuant to Section 1350, Chapter 63 of Title 18,
|
|
|
United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
101.INS
|
|
|
XBRL Instance Document
|
|
|
|
101.SCH
|
|
|
XBRL Taxonomy Extension Schema
|
|
|
|
101.CAL
|
|
|
XBRL Taxonomy Extension Calculation Linkbase
|
|
|
|
101.DEF
|
|
|
XBRL Taxonomy Extension Definition Linkbase
|
|
|
|
101.LAB
|
|
|
XBRL Taxonomy Extension Label Linkbase
|
|
|
|
101.PRE
|
|
|
XBRL Taxonomy Extension Presentation Linkbase
|
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
|
|
Old Republic International Corporation
|
|
|
|
(Registrant)
|
Date:
|
November 4, 2016
|
|
|
|
|
|
|
|
|
|
/s/ Karl W. Mueller
|
|
|
|
|
|
|
|
Karl W. Mueller
Senior Vice President,
Chief Financial Officer, and
Principal Accounting Officer
|
EXHIBIT INDEX
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
|
31.1
|
|
|
Certification by Aldo C. Zucaro, Chief Executive Officer, pursuant to Rule 13a-14(a) and 15d-14(a), as
|
|
|
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
31.2
|
|
|
Certification by Karl W. Mueller, Chief Financial Officer, pursuant to Rule 13a-14(a) and 15d-14(a), as
|
|
|
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
32.1
|
|
|
Certification by Aldo C. Zucaro, Chief Executive Officer, pursuant to Section 1350, Chapter 63 of Title
|
|
|
18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
32.2
|
|
|
Certification by Karl W. Mueller, Chief Financial Officer, pursuant to Section 1350, Chapter 63 of Title
|
|
|
18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
101.INS
|
|
|
XBRL Instance Document
|
|
|
|
101.SCH
|
|
|
XBRL Taxonomy Extension Schema
|
|
|
|
101.CAL
|
|
|
XBRL Taxonomy Extension Calculation Linkbase
|
|
|
|
101.DEF
|
|
|
XBRL Taxonomy Extension Definition Linkbase
|
|
|
|
101.LAB
|
|
|
XBRL Taxonomy Extension Label Linkbase
|
|
|
|
101.PRE
|
|
|
XBRL Taxonomy Extension Presentation Linkbase
|
Old Republic (NYSE:ORI)
Historical Stock Chart
From Mar 2024 to Apr 2024
Old Republic (NYSE:ORI)
Historical Stock Chart
From Apr 2023 to Apr 2024