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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
Quarterly report pursuant to section 13 or 15(d) of the Security Exchange Act of 1934
for the quarterly period ended: September 30, 2020
or
Transition report pursuant to section 13 or 15(d) of the Security Exchange Act of 1934
Commission File Number: 001-10607
OLD REPUBLIC INTERNATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 36-2678171
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
307 North Michigan Avenue Chicago Illinois 60601
(Address of principal executive office) (Zip Code)

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

Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock / $1 par value ORI New York Stock Exchange

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes: No:

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

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

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

The number of shares of the Registrant's Common Stock outstanding at September 30, 2020 was 304,062,837.

There are 54 pages in this report



OLD REPUBLIC INTERNATIONAL CORPORATION
Report on Form 10-Q / September 30, 2020
INDEX
PAGE NO.
PART I FINANCIAL INFORMATION:
CONSOLIDATED BALANCE SHEETS 3
CONSOLIDATED STATEMENTS OF INCOME 4
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME 5
CONSOLIDATED STATEMENTS OF PREFERRED STOCK AND COMMON
SHAREHOLDERS' EQUITY 6
CONSOLIDATED STATEMENTS OF CASH FLOWS 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8 - 19
MANAGEMENT ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS 20 - 49
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK 50
CONTROLS AND PROCEDURES 50
PART II OTHER INFORMATION:
ITEM 1 - LEGAL PROCEEDINGS 51
ITEM 1A - RISK FACTORS 51
ITEM 6 - EXHIBITS 52
SIGNATURE 53
EXHIBIT INDEX 54




2


Old Republic International Corporation and Subsidiaries
Consolidated Balance Sheets
($ in Millions, Except Share Data)
(Unaudited)
September 30, December 31,
2020 2019
Assets
Investments:
Available for sale:
Fixed maturity securities (at fair value) (amortized cost: $9,620.9 and $8,537.3) $ 10,206.6  $ 8,796.5 
Short-term investments (at fair value which approximates cost) 748.1  484.3 
Total 10,954.8  9,280.9 
Held to maturity:
Fixed maturity securities (at amortized cost) (fair value: $- and $1,058.2)   1,021.7 
Equity securities (at fair value) (cost: $3,271.0 and $3,089.1) 3,682.9  4,030.5 
Other investments 25.2  26.0 
Total investments 14,662.9  14,359.2 
Other Assets:
Cash 95.0  78.8 
Accrued investment income 88.0  89.3 
Accounts and notes receivable 1,734.0  1,466.7 
Federal income tax recoverable: Current   5.7 
Reinsurance balances and funds held 202.2  178.4 
Reinsurance recoverable: Paid losses 81.0  68.5 
 Policy and claim reserves 4,278.8  3,755.3 
Deferred policy acquisition costs 328.8  325.4 
Sundry assets 777.6  748.5 
Total Other Assets 7,585.7  6,717.1 
Total Assets $ 22,248.7  $ 21,076.3 
Liabilities, Preferred Stock, and Common Shareholders' Equity
Liabilities:
Losses, claims, and settlement expenses $ 10,557.1  $ 9,929.5 
Unearned premiums 2,495.6  2,224.7 
Other policyholders' benefits and funds 194.3  194.4 
Total policy liabilities and accruals 13,247.1  12,348.7 
Commissions, expenses, fees, and taxes 540.3  550.9 
Reinsurance balances and funds 852.1  616.0 
Federal income tax payable: Current 9.4  — 
Federal income tax payable: Deferred 66.4  112.2 
Debt 966.2  974.0 
Sundry liabilities 492.5  474.1 
Commitments and contingent liabilities
Total Liabilities 16,174.0  15,076.1 
Preferred Stock (1)
  — 
Common Shareholders' Equity:
Common stock (1) 304.0  303.6 
Additional paid-in capital 1,305.6  1,297.5 
Retained earnings 4,234.9  4,386.0 
Accumulated other comprehensive income (loss) 336.1  77.7 
Unallocated ESSOP shares (at cost) (106.1) (64.8)
Total Common Shareholders' Equity 6,074.6  6,000.1 
Total Liabilities, Preferred Stock and Common Shareholders' Equity $ 22,248.7  $ 21,076.3 
________

(1)    At September 30, 2020 and December 31, 2019, there were 75,000,000 shares of $0.01 par value preferred stock authorized, of which no shares were outstanding. As of the same dates, there were 500,000,000 shares of common stock, $1.00 par value, authorized, of which 304,062,837 and 303,652,553 were issued as of September 30, 2020 and December 31, 2019, respectively. At September 30, 2020 and December 31, 2019, there were 100,000,000 shares of Class B Common Stock, $1.00 par value, authorized, of which no shares were issued.
See accompanying Notes to Consolidated Financial Statements.

3


Old Republic International Corporation and Subsidiaries
Consolidated Statements of Income (Unaudited)
($ in Millions, Except Share Data)
Quarters Ended Nine Months Ended
September 30, September 30,
2020 2019 2020 2019
Revenues:
Net premiums earned $ 1,496.0  $ 1,423.4  $ 4,225.8  $ 4,016.5 
Title, escrow, and other fees 168.9  138.2  418.9  363.8 
Total premiums and fees 1,664.9  1,561.7  4,644.8  4,380.4 
Net investment income 106.4  112.7  329.3  337.8 
Other income 31.7  32.9  98.5  97.4 
Total operating revenues 1,803.0  1,707.3  5,072.7  4,815.7 
Investment gains (losses):
Realized from actual transactions 1.4  6.3  12.7  31.3 
Realized from impairments —  —  —  (2.0)
Unrealized from changes in fair value of
equity securities 79.2  57.3  (529.4) 439.3 
Total realized and unrealized investment
gains (losses) 80.7  63.6  (516.7) 468.7 
Total revenues 1,883.8  1,771.0  4,556.0  5,284.4 
Benefits, Claims and Expenses:
Benefits, claims and settlement expenses 633.2  659.5  1,870.8  1,887.9 
Dividends to policyholders 4.9  4.2  14.0  17.2 
Underwriting, acquisition, and other expenses 929.1  845.0  2,603.0  2,372.0 
Interest and other charges 9.5  9.7  31.8  30.8 
Total expenses 1,576.8  1,518.6  4,519.8  4,308.0 
Income (loss) before income taxes (credits) 306.9  252.4  36.1  976.3 
Income Taxes (Credits):
Current 45.0  38.9  110.9  113.2 
Deferred 15.9  10.5  (113.7) 82.4 
Total 60.9  49.5  (2.7) 195.6 
Net Income (Loss) $ 246.0  $ 202.8  $ 38.9  $ 780.6 
Net Income (Loss) Per Share:
Basic $ .83  $ .68  $ .13  $ 2.60 
Diluted $ .83  $ .67  $ .13  $ 2.59 
Average shares outstanding: Basic 297,729,418 299,894,995 298,526,123 299,740,751
Diluted 297,990,822 301,384,364 299,015,526 301,034,156

See accompanying Notes to Consolidated Financial Statements.

4


Old Republic International Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income (Unaudited)
($ in Millions)
Quarters Ended Nine Months Ended
September 30, September 30,
2020 2019 2020 2019
Net Income (Loss) As Reported $ 246.0  $ 202.8  $ 38.9  $ 780.6 
Other comprehensive income (loss):
Unrealized gains (losses) on securities:
Unrealized gains (losses) before reclassifications,
not included in the statements of income 32.3  53.3  321.5  366.6 
Amounts reclassified as realized investment (gains)
losses in the statements of income (.7) 7.3  7.8  10.7 
Pretax unrealized gains (losses) on securities 31.6  60.7  329.3  377.3 
Deferred income taxes (credits) 6.6  12.7  69.5  79.5 
Net unrealized gains (losses) on securities, net of tax 24.9  48.0  259.8  297.8 
Defined benefit pension plans:
Net pension adjustment before reclassifications   —    (2.6)
Amounts reclassified as underwriting, acquisition,
and other expenses in the statements of income .9  1.0  2.7  3.0 
Pretax net adjustment related to defined benefit
pension plans .9  1.0  2.7  .4 
Deferred income taxes (credits) .1  .2  .5  .1 
Net adjustment related to defined benefit pension
plans, net of tax .7  .8  2.1  .3 
Foreign currency translation and other adjustments 2.8  (1.6) (3.6) 3.8 
Total other comprehensive income (loss) 28.5  47.2  258.3  302.0 
Comprehensive Income (Loss) $ 274.5  $ 250.1  $ 297.3  $ 1,082.7 


See accompanying Notes to Consolidated Financial Statements.

5


Old Republic International Corporation and Subsidiaries
Consolidated Statements of Preferred Stock
and Common Shareholders' Equity (Unaudited)
($ in Millions)
Quarters Ended Nine Months Ended
September 30, September 30,
2020 2019 2020 2019
Convertible Preferred Stock:
Balance, beginning and end of period $   $ —  $   $ — 
Common Stock:
Balance, beginning of period $ 304.0  $ 303.2  $ 303.6  $ 302.7 
Dividend reinvestment plan   —    — 
Net issuance of shares under stock based compensation plans   .3  .3  .7 
Balance, end of period $ 304.0  $ 303.5  $ 304.0  $ 303.5 
Additional Paid-in Capital:
Balance, beginning of period $ 1,305.1  $ 1,288.6  $ 1,297.5  $ 1,277.6 
Dividend reinvestment plan .2  1.0  .7  1.4 
Net issuance of shares under stock based compensation plans .1  4.3  4.8  10.3 
Stock based compensation .4  .4  2.0  3.6 
ESSOP shares released   .8  .7  2.1 
Other - net (.2) —  (.2) — 
Balance, end of period $ 1,305.6  $ 1,295.2  $ 1,305.6  $ 1,295.2 
Retained Earnings:
Balance, beginning of period $ 4,051.2  $ 4,326.7  $ 4,386.0  $ 3,849.8 
Change in accounting principle   —  (2.3) 18.4 
Balance, beginning of period, as adjusted 4,051.2  4,326.7  4,383.6  3,868.3 
Net income (loss) 246.0  202.8  38.9  780.6 
Dividends on common shares ($.21, $1.20, $.63 and $1.60 per
common share) (62.4) (359.4) (187.7) (478.8)
Balance, end of period $ 4,234.9  $ 4,170.1  $ 4,234.9  $ 4,170.1 
Accumulated Other Comprehensive Income (Loss):
Balance, beginning of period $ 307.5  $ 44.8  $ 77.7  $ (210.0)
Net unrealized gains (losses) on securities, net of tax 24.9  48.0  259.8  297.8 
Net adjustment related to defined benefit pension plans,
net of tax .7  .8  2.1  .3 
Foreign currency translation and other adjustments 2.8  (1.6) (3.6) 3.8 
Balance, end of period $ 336.1  $ 92.0  $ 336.1  $ 92.0 
Unallocated ESSOP Shares:
Balance, beginning of period $ (109.0) $ (69.4) $ (64.8) $ (73.9)
ESSOP shares released 2.8  2.2  8.6  6.8 
Purchase of unallocated ESSOP shares   —  (50.0) — 
Balance, end of period $ (106.1) $ (67.1) $ (106.1) $ (67.1)

See accompanying Notes to Consolidated Financial Statements.

6


Old Republic International Corporation and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
($ in Millions)
Nine Months Ended
September 30,
2020 2019
Cash flows from operating activities:
Net income (loss) $ 38.9  $ 780.6 
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Deferred policy acquisition costs (3.3) (16.5)
Premiums and other receivables (263.5) (188.3)
Unpaid claims and related items 328.8  142.8 
Unearned premiums and other policyholders' liabilities 46.0  81.0 
Income taxes (99.7) 97.1 
Prepaid federal income taxes   (8.6)
Reinsurance balances 193.1  130.5 
Realized investment (gains) losses from actual transactions and impairments (12.7) (29.3)
Unrealized investment (gains) losses from changes in fair value
of equity securities 529.4  (439.3)
Accounts payable, accrued expenses and other 51.9  116.1 
Total 808.9  666.2 
Cash flows from investing activities:
Fixed maturity securities:
Available for sale:
Maturities and early calls 935.3  464.4 
Sales 343.6  430.3 
Sales of:
Equity securities 159.1  520.6 
Other - net 7.1  28.2 
Purchases of:
Fixed maturity securities:
Available for sale (1,380.2) (1,016.4)
Equity securities (321.0) (430.2)
Other - net (31.7) (42.4)
Net decrease (increase) in short-term investments (263.6) (132.0)
Other - net (.4) (1.2)
Total (551.9) (178.6)
Cash flows from financing activities:
Issuance of common shares 6.0  12.7 
Redemption of debentures and notes (8.6) (8.4)
Purchase of unallocated common shares by ESSOP (50.0) — 
Dividends on common shares (including a special dividend paid in September
2019 of $303.4) (187.7) (478.8)
Other - net (.5) (3.7)
Total (240.8) (478.3)
Increase (decrease) in cash 16.1  9.2 
Cash, beginning of period 78.8  100.3 
Cash, end of period $ 95.0  $ 109.6 
Supplemental cash flow information:
Cash paid (received) during the period for: Interest $ 41.3  $ 41.9 
                                                                         Income taxes $ 98.2  $ 99.0 
See accompanying Notes to Consolidated Financial Statements.

7


OLD REPUBLIC INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
($ in Millions, Except Share Data)

1. Accounting Policies and Basis of Presentation:

The accompanying consolidated financial statements have been prepared in conformity with the Financial Accounting Standards Board's ("FASB") Accounting Standards Codification ("ASC") of accounting principles generally accepted in the United States of America ("GAAP"). These interim financial statements should be read in conjunction with these notes and those included in the Company's 2019 Annual Report on Form 10-K incorporated herein by reference.

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

a) Effective January 1, 2019, the Company adopted FASB guidance on lease accounting which requires balance sheet recognition of all leases with a term greater than 12 months. The Company's adoption of this guidance is discussed in Note 7.

b) Effective January 1, 2020, the Company adopted the FASB’s current expected credit loss standard ("CECL") which requires the immediate recognition of estimated credit losses expected to occur over the remaining life of certain financial assets measured at amortized cost, including the Company’s reinsurance recoverables, held to maturity securities and its accounts and notes receivable. CECL replaces the current incurred loss impairment model that recognizes losses when a probability threshold is met with a requirement to recognize lifetime expected credit losses immediately when a financial asset is originated or purchased and at subsequent measurement dates. The expected credit losses, and subsequent adjustment to such losses, are recorded through an allowance account that is deducted from the amortized cost basis of the financial asset, with the net carrying value of the asset presented on the consolidated balance sheet.

The guidance also modifies the impairment model for available for sale fixed maturity securities by requiring the recognition of other than temporary impairments ("OTTI") relating to credit losses through an allowance account, as opposed to a charge that cannot be revised should the underlying security recover. Under the guidance, the length of time a security has been in an unrealized loss position will no longer impact the determination as to whether an OTTI loss exists.

The guidance relating to financial assets measured at amortized cost was adopted on a modified retrospective basis, resulting in a net of tax adjustment to January 1, 2020 retained earnings of $2.3. The Company’s total credit loss allowance relating to financial assets increased from $30.1 as of January 1, 2020 to $35.7 at September 30, 2020. The September 30, 2020 allowance was comprised of $16.0 related to reinsurance recoverables and $19.7 related to accounts and notes receivable. At adoption, the allowance included $14.5 related to reinsurance recoverables, $15.5 related to accounts and notes receivable, and an immaterial amount related to held to maturity securities.

The Company performs an ongoing evaluation of reinsurance balances outstanding and uses a probability-of-default methodology to estimate the credit allowance for uncollectible amounts. Allowances for uncollectible accounts and notes receivable are established based on a review of amounts outstanding, historical charge off activity, and current and forecasted economic conditions.

The revised impairment guidance for available for sale fixed maturity securities was adopted on a prospective basis. Related disclosures relative to this standard’s impact on the Company’s investment portfolio are included in Note 3.

The financial accounting and reporting process relies on estimates and on the exercise of judgment. In the opinion of management all adjustments consisting only of normal recurring accruals necessary for a fair presentation of interim periods' results and financial position have been recorded. Amounts shown in the consolidated financial statements and applicable notes are stated (except as otherwise indicated and as to share data) in millions, which amounts may not add to totals shown due to truncation. Necessary reclassifications are made in prior periods' financial statements whenever appropriate to conform to the most current presentation.

2. Common Share Data:

Earnings Per Share - Consolidated basic earnings per share excludes the dilutive effect of common stock equivalents and is computed by dividing income (loss) available to common stockholders by the weighted-average number of common shares actually outstanding for the quarterly and year-to-date periods. Diluted earnings per share are similarly calculated with the inclusion of dilutive common stock equivalents. The following table provides a reconciliation of net income (loss) and the number of shares used in basic and diluted earnings per share calculations.
8


Quarters Ended Nine Months Ended
September 30, September 30,
2020 2019 2020 2019
Numerator:
Basic and diluted earnings per share -
income (loss) available to common stockholders $ 246.0  $ 202.8  $ 38.9  $ 780.6 
Denominator:
Basic earnings per share -
weighted-average shares (a) 297,729,418  299,894,995  298,526,123  299,740,751 
Effect of dilutive securities - stock based
   compensation awards 261,404  1,489,369  489,403  1,293,405 
Diluted earnings per share -
adjusted weighted-average shares (a) 297,990,822 301,384,364 299,015,526 301,034,156
Earnings per share: Basic $ .83  $ .68  $ .13  $ 2.60 
Diluted $ .83  $ .67  $ .13  $ 2.59 
Anti-dilutive common stock equivalents
excluded from earnings per share computations:
Stock based compensation awards 8,063,111  40,000  5,858,669  2,238,055 
__________

(a) In calculating earnings per share, pertinent accounting rules require that common shares owned by the Company's Employee Savings and Stock Ownership Plan that are not yet allocated to participants in the plan be excluded from the calculation. Such shares are issued and outstanding, and have the same voting and other rights applicable to all common shares.

3. Investments:

The Company classifies its fixed maturity securities as those it either (1) has the positive intent and ability to hold until maturity, (2) has available for sale or (3) has the intention of trading. As of June 30, 2020 the Company changed its intent to hold its tax exempt municipal bond portfolio until maturity and consequently, reclassified these securities from their previous held to maturity designation to available for sale. As a result, cumulative net of tax unrealized gains of $48.5 were recognized in other comprehensive income as of that date. The Company's entire fixed maturity portfolio is now classified as available for sale.

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

The status and fair value changes of each of the fixed maturity investments are reviewed at least once per quarter during the year, and estimates of other-than-temporary impairments ("OTTI") in the portfolio's value are evaluated and established at each quarterly balance sheet date. In reviewing investments for OTTI, the Company, in addition to a security's market price history, considers the totality of such factors as the issuer's operating results, financial condition and liquidity, its ability to access capital markets, credit rating trends, most current audited financial statements, industry and securities markets conditions, and analyst expectations to reach its conclusions. Sudden fair value declines caused by such adverse developments as newly emerged or imminent bankruptcy filings, issuer default on significant obligations, or reports of financial accounting developments that bring into question the validity of the issuer's previously reported earnings or financial condition, are recognized as realized losses as soon as credible publicly available information emerges to confirm such developments. In the event the Company's estimate of OTTI is insufficient at any point in time, future periods' net income (loss) would be negatively impacted by the recognition of additional impairment losses, but its financial position would not necessarily be affected adversely inasmuch as such losses, or a portion of them, could have been recognized previously as unrealized losses directly in shareholders' equity. The Company recognized no OTTI adjustments for the quarter and nine months ended September 30, 2020, and $0 and $2.0 of OTTI adjustments for the quarter and nine months ended September 30, 2019, respectively.

A summary of fixed maturity securities by type, contractual maturity and credit quality are shown in the following tables. Expected maturities will differ from contractual maturities since borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
9


Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value
Fixed Maturity Securities by Type:
September 30, 2020:
Available for sale:
U.S. & Canadian Governments $ 1,860.2  $ 105.4  $ .1  $ 1,965.5 
Tax-exempt 1,004.1  66.8  —  1,071.0 
Corporate 6,756.5  425.5  11.9  7,170.1 
$ 9,620.9  $ 597.8  $ 12.1  $ 10,206.6 
December 31, 2019:
Available for sale:
U.S. & Canadian Governments $ 1,842.3  $ 36.9  $ .4  $ 1,878.8 
Corporate 6,694.9  225.5  2.8  6,917.6 
$ 8,537.3  $ 262.5  $ 3.3  $ 8,796.5 
Held to maturity:
Tax-exempt $ 1,021.7  $ 36.5  $ —  $ 1,058.2 
Amortized
Cost
Estimated
Fair
Value
Fixed Maturity Securities Stratified by Contractual Maturity at September 30, 2020:
Available for sale:
Due in one year or less $ 993.2  $ 1,003.2 
Due after one year through five years 5,444.9  5,750.7 
Due after five years through ten years 3,036.4  3,303.2 
Due after ten years 146.3  149.3 
$ 9,620.9  $ 10,206.6 
Fixed Maturity Securities Stratified by Credit Quality (a):
All Fixed Maturity Securities Held to Maturity
September 30, December 31, December 31,
2020 2019 2019
Aaa 24.5  % 23.9  % 39.5  %
Aa 12.5  13.1  52.5 
A 33.6  32.6  8.0 
Baa 26.5  26.1  — 
Total investment grade 97.1  95.7  100.0 
All other (b) 2.9  4.3  — 
Total 100.0  % 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.
(b)    "All other" includes non-investment grade or non-rated issuers.

As described in Note 1, the Company adopted the FASB's accounting guidance on CECL effective January 1, 2020. The credit allowance for the Company's held to maturity fixed maturity securities was evaluated using a probability-of-default methodology and due to the high credit quality of the portfolio, the resulting allowance established was not material. As previously noted, the Company no longer classifies these fixed maturity securities as held to maturity.

The following tables reflect the Company's gross unrealized losses and fair value, aggregated by category and length of time that individual available for sale and held to maturity fixed maturity securities have been in an unrealized loss position. Fair value and issuer's cost comparisons follow:
10


Less than 12 Months 12 Months or Greater Total
Fair
Value
Unrealized Losses Fair
Value
Unrealized Losses Fair
Value
Unrealized Losses
September 30, 2020:
Fixed Maturity Securities:
Available for sale:
  U.S. & Canadian Governments $ 210.3  $ .1  $ —  $ —  $ 210.3  $ .1 
  Corporate 514.3  11.9  1.3  —  515.7  11.9 
$ 724.7  $ 12.1  $ 1.3  $ —  $ 726.0  $ 12.1 
Number of available for sale
securities in unrealized
loss position 94  98 
December 31, 2019:
Fixed Maturity Securities:
Available for sale:
  U.S. & Canadian Governments $ 217.2  $ .3  $ 53.0  $ .1  $ 270.3  $ .4 
  Corporate 176.4  1.9  54.3  .8  230.7  2.8 
$ 393.7  $ 2.3  $ 107.4  $ 1.0  $ 501.1  $ 3.3 
Number of available for sale
securities in unrealized
loss position 54  47  101 
Held to maturity:
  Tax-exempt $ —  $ —  $ 21.7  $ —  $ 21.7  $ — 
Number of held to maturity
securities in unrealized
loss position — 

In the above tables the unrealized losses on fixed income securities reflect changes in the interest rate environment and the effects of the COVID-19 pandemic and the associated governmental responses. As part of its assessment of other-than-temporary impairments, the Company considers its intent to continue to hold the securities, and the likelihood that it will not be required to sell investment securities in an unrealized loss position until cost recovery, principally in consideration of its asset and liability matching objectives.

The following table shows cost and fair value information for equity securities:
Equity Securities

Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value
September 30, 2020 $ 3,271.0  $ 776.3  $ 364.4  $ 3,682.9 
December 31, 2019 $ 3,089.1  $ 968.0  $ 26.6  $ 4,030.5 

During the third quarter and first nine months of 2020 and 2019, the Company recognized pretax unrealized investment gains (losses) of $79.2 and $(529.4), respectively for 2020, and $57.3 and $439.3, respectively for 2019, emanating from changes in the fair value of equity securities in the consolidated statements of income. Changes in the fair value of equity securities still held at September 30, 2020 and 2019 were $78.9 and $(520.6) for the third quarter and first nine months of 2020, respectively, and $78.0 and $438.5 for the third quarter and first nine months of 2019, respectively.

Fair Value Measurements - Fair value is defined as the estimated price that is likely to be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants (an exit price) at the measurement date. A fair value hierarchy is established that prioritizes the sources ("inputs") used to measure fair value into three broad levels: Level 1 inputs are based on quoted market prices in active markets; Level 2 observable inputs are based on corroboration with available market data; and Level 3 unobservable inputs are based on uncorroborated market data or a reporting entity's own assumptions. Following is a description of the valuation methodologies and general classification used for financial instruments measured at fair value.

11


The Company uses quoted values and other data provided by a nationally recognized independent pricing source as inputs into its quarterly process for determining fair values of fixed maturity and equity securities. To validate the techniques or models used by pricing sources, the Company's review process includes, but is not limited to: (i) initial and ongoing evaluation of methodologies used by outside parties to calculate fair value; and (ii) comparisons with other sources including the fair value estimates based on current market quotations, and with independent fair value estimates provided by the independent investment custodian. The independent pricing source obtains market quotations and actual transaction prices for securities that have quoted prices in active markets and uses their own proprietary method for determining the fair value of securities that are not actively traded. In general, these methods involve the use of "matrix pricing" in which the independent pricing source uses observable market inputs including, but not limited to, investment yields, credit risks and spreads, benchmarking of like securities, broker-dealer quotes, reported trades and sector groupings to determine a reasonable fair value.

Level 1 securities include U.S. and Canadian Treasury notes, publicly traded common stocks, mutual funds, and short-term investments in highly liquid money market instruments. Level 2 securities generally include corporate bonds, municipal bonds, and certain U.S. and Canadian government agency securities. Securities classified within Level 3 include non-publicly traded bonds and equity securities. There were no significant changes in the fair value of Level 3 assets as of September 30, 2020 and December 31, 2019.

The following tables show a summary of the fair value of financial assets segregated among the various input levels described above:
Fair Value Measurements
As of September 30, 2020: Level 1 Level 2 Level 3 Total
Available for sale:
Fixed maturity securities:
U.S. & Canadian Governments $ 1,157.8  $ 807.7  $ —  $ 1,965.5 
Tax-exempt —  1,071.0  —  1,071.0 
Corporate —  7,159.6  10.5  7,170.1 
Short-term investments 748.1  —  —  748.1 
Equity securities $ 3,681.0  $ —  $ 1.8  $ 3,682.9 
As of December 31, 2019:
Available for sale:
Fixed maturity securities:
U.S. & Canadian Governments $ 1,068.1  $ 810.7  $ —  $ 1,878.8 
Corporate —  6,907.1  10.5  6,917.6 
Short-term investments 484.3  —  —  484.3 
Held to maturity:
Fixed maturity securities:
Tax-exempt —  1,058.2  —  1,058.2 
Equity securities $ 4,028.7  $ —  $ 1.7  $ 4,030.5 

There were no transfers between Levels 1, 2 or 3 during the nine months ended September 30, 2020.

Investment income is reported net of allocated expenses and includes appropriate adjustments for amortization of premium and accretion of discount on fixed maturity securities acquired at other than par value. Dividends on equity securities are credited to income on the ex-dividend date. At September 30, 2020, the Company and its subsidiaries had no non-income producing fixed maturity or equity securities.

Realized investment gains and losses, which result from sales or impairments of securities, are reflected as revenues in the income statement and are determined on the basis of amortized value at date of sale for fixed maturity securities, and cost in regard to equity securities; such bases apply to the specific securities sold.

The following table reflects the composition of net investment income, net realized gains or losses, and the net change in unrealized investment gains or losses for each of the periods shown.
12


Quarters Ended Nine Months Ended
September 30, September 30,
2020 2019 2020 2019
Investment income:
Fixed maturity securities $ 71.3  $ 74.4  $ 218.3  $ 224.3 
Equity securities 36.1  36.2  111.1  106.6 
Short-term investments .1  2.7  2.3  7.6 
Other sources .3  1.0  2.7  4.4 
Gross investment income 107.9  114.4  334.5  343.1 
Investment expenses (a) 1.5  1.7  5.1  5.2 
Net investment income $ 106.4  $ 112.7  $ 329.3  $ 337.8 
Investment gains (losses):
From actual transactions:
Fixed maturity securities:
Gains $ 6.3  $ .8  $ 10.0  $ 4.6 
Losses (5.6) (6.0) (17.9) (11.1)
Net .6  (5.1) (7.8) (6.5)
Equity securities:
Gains .7  42.7  21.7  97.0 
Losses —  (29.0) (1.2) (57.0)
Net .7  13.6  20.5  40.0 
Other investments, net —  (2.2) —  (2.1)
Total from actual transactions 1.4  6.3  12.7  31.3 
From impairments —  —  —  (2.0)
From unrealized changes in fair value of equity securities 79.2  57.3  (529.4) 439.3 
Total realized and unrealized investment gains (losses) 80.7  63.6  (516.7) 468.7 
Current and deferred income taxes (credits) 16.9  13.5  (108.7) 98.7 
Net of tax realized and unrealized investment gains (losses) $ 63.7  $ 50.1  $ (408.0) $ 369.9 
Changes in unrealized investment gains (losses)
reflected directly in shareholders' equity:
Fixed maturity securities $ 31.5  $ 58.2  $ 325.9  $ 373.6 
Less: Deferred income taxes (credits) 6.6  12.1  68.7  78.6 
24.8  46.0  257.1  295.0 
Other investments .1  2.5  3.4  3.6 
Less: Deferred income taxes (credits) —  .6  .7  .8 
—  1.9  2.7  2.8 
Net changes in unrealized investment gains (losses),
net of tax $ 24.9  $ 48.0  $ 259.8  $ 297.8 
__________

(a)    Investment expenses largely consist of personnel costs and investment management and custody service fees.

4. Losses, Claims and Settlement Expenses:

The establishment of claim reserves by the Company's insurance subsidiaries is a reasonably complex and dynamic process influenced by a large variety of factors. These factors principally include past experience applicable to the anticipated costs of various types of claims, continually evolving and changing legal theories emanating from the judicial system, recurring accounting, statistical, and actuarial studies, the professional experience and expertise of the Company's claim departments' personnel or attorneys and independent claim adjusters, ongoing changes in claim frequency or severity patterns such as those caused by natural disasters, illnesses, accidents, work-related injuries, and changes in general and industry-specific economic conditions. Consequently, the reserves established are a reflection of the opinions of a large number of persons, of the application and interpretation of historical precedent and trends, of expectations as to future developments, and of management's judgment in interpreting all such factors. At any point in time, the Company is exposed to the incurrence of possibly higher or lower than anticipated claim costs due to all of these factors, and to the evolution, interpretation, and expansion of tort law, as well as the effects of unexpected jury verdicts.

13


All reserves are therefore based on estimates which are periodically reviewed and evaluated in the light of emerging claim experience and changing circumstances. The resulting changes in estimates are recorded in operations of the periods during which they are made. Return and additional premiums and policyholders' dividends, all of which tend to be affected by development of claims in future years, may offset, in whole or in part, favorable or unfavorable claim developments for certain coverages such as workers' compensation, portions of which are written under loss sensitive programs that provide for such adjustments. The Company believes that its overall reserving practices have been consistently applied over many years, and that its aggregate net reserves have generally resulted in reasonable approximations of the ultimate net costs of claims incurred. However, no representation is made nor is any guaranty given that ultimate net claim and related costs will not develop in future years to be greater or lower than currently established reserve estimates.

The Company’s accounting policy regarding the establishment of claim reserve estimates is described in Note 1(h) to the consolidated financial statements included in Old Republic’s 2019 Annual Report on Form 10-K. The following table shows an analysis of changes in aggregate reserves for the Company's losses, claims and settlement expenses for each of the periods shown.






















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14


Summary of changes in aggregate reserves for claims and related costs:
Nine Months Ended
September 30,
2020 2019
Gross reserves at beginning of period $ 9,929.5  $ 9,471.2 
Less: reinsurance losses recoverable 3,249.7  3,006.3 
Net reserves at beginning of period:
General Insurance 6,021.3  5,766.1 
Title Insurance 530.9  533.4 
RFIG Run-off 118.9  154.5 
Other 8.4  10.8 
Sub-total 6,679.7  6,464.9 
Incurred claims and claim adjustment expenses:
Provisions for insured events of the current year:
General Insurance 1,787.9  1,815.9 
Title Insurance 80.8  71.3 
RFIG Run-off (a) 36.2  29.9 
Other 8.3  10.9 
Sub-total 1,913.4  1,928.1 
Change in provision for insured events of prior years:
General Insurance (11.6) (11.1)
Title Insurance (19.6) (18.0)
RFIG Run-off (a) (7.8) (6.4)
Other (2.3) (3.2)
Sub-total (41.4) (38.7)
Total incurred claims and claim adjustment expenses (a) 1,871.9  1,889.3 
Payments:
Claims and claim adjustment expenses attributable to
   insured events of the current year:
General Insurance 505.9  562.2 
Title Insurance 1.9  2.2 
RFIG Run-off .6  2.0 
Other 4.8  7.2 
Sub-total 513.4  573.8 
Claims and claim adjustment expenses attributable to
   insured events of prior years:
General Insurance 968.3  1,068.4 
Title Insurance 35.5  49.8 
RFIG Run-off 23.9  51.3 
Other 1.9  2.9 
Sub-total 1,029.8  1,172.5 
Total payments 1,543.2  1,746.3 
Amount of reserves for unpaid claims and claim adjustment expenses
at the end of each period, net of reinsurance losses recoverable:
General Insurance 6,323.4  5,940.1 
Title Insurance 554.5  534.6 
RFIG Run-off 122.7  124.6 
Other 7.7  8.3 
Sub-total 7,008.4  6,607.8 
Reinsurance losses recoverable 3,548.6  3,209.5 
Gross reserves at end of period $ 10,557.1  $ 9,817.4 
__________

(a)In common with all other insurance coverages, RFIG Run-off mortgage guaranty settled and incurred claim and claim adjustment expenses include only those costs actually or expected to be paid by the Company. Changes in mortgage guaranty aggregate case, IBNR, and loss adjustment expense reserves entering into the determination of incurred claim costs, take into account, among a large number of variables, claim cost reductions for anticipated coverage rescissions and claims denials. Estimates of coverage rescissions and claim denials are no longer material to Old Republic's consolidated financial statements.
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5. Employee Benefit Plans:

The Company had an active pension plan (the "Plan") covering a portion of its work force until December 31, 2013. The Plan is a defined benefit plan pursuant to which pension payments are based primarily on years of service and employee compensation near retirement. The Plan was closed to new participants and benefits were frozen as of December 31, 2013. As a result, eligible employees retained all of the vested rights as of the effective date of the freeze. While additional benefits no longer accrue, the Company's cumulative obligation continues to be subject to further adjustment due to changes in actuarial assumptions such as expected mortality and changes in interest rates. Net periodic pension costs for the quarterly periods ended September 30, 2020 and 2019 were not material to Old Republic's consolidated statements of income.

During the first quarter of 2020, the Employee Savings and Stock Ownership Plan (ESSOP) purchased 3.3 million shares of Old Republic common stock for $50.0. The purchases were financed by loans to the ESSOP from participating subsidiaries.

6. Information About Segments of Business:

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













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Segmented and Consolidated Results:
Quarters Ended Nine Months Ended
September 30, September 30,
2020 2019 2020 2019
General Insurance (a):
Net premiums earned $ 861.9  $ 870.2  $ 2,532.8  $ 2,551.9 
Net investment income and other income 117.3  121.4  362.1  362.8 
Total revenues excluding investment gains (losses) $ 979.3  $ 991.7  $ 2,895.0  $ 2,914.7 
Segment pretax operating income (loss) (b) $ 109.7  $ 90.7  $ 305.1  $ 285.8 
Income tax expense (credits) on above $ 20.5  $ 17.2  $ 56.9  $ 54.2 
Title Insurance:
Net premiums earned $ 620.2  $ 535.5  $ 1,648.7  $ 1,408.4 
Title, escrow and other fees 168.9  138.2  418.9  363.8 
Sub-total 789.1  673.8  2,067.7  1,772.3 
Net investment income and other income 10.5  10.4  32.1  31.3 
Total revenues excluding investment gains (losses) $ 799.6  $ 684.3  $ 2,099.8  $ 1,803.7 
Segment pretax operating income (loss) (b) $ 103.1  $ 72.8  $ 211.9  $ 153.7 
Income tax expense (credits) on above $ 21.5  $ 15.9  $ 44.4  $ 33.0 
RFIG Run-off Business (a):
Net premiums earned $ 10.8  $ 14.2  $ 35.1  $ 45.8 
Net investment income and other income 3.4  4.2  11.8  13.2 
Total revenues excluding investment gains (losses) $ 14.3  $ 18.5  $ 46.9  $ 59.1 
Segment pretax operating income (loss) $ 4.5  $ 7.3  $ 8.0  $ 23.9 
Income tax expense (credits) on above $ .8  $ 1.4  $ 1.2  $ 4.6 
Consolidated Revenues:
Total revenues of Company segments $ 1,793.3  $ 1,694.6  $ 5,041.8  $ 4,777.6 
Other sources (c) 36.4  43.0  112.6  131.1 
Consolidated investment gains (losses):
Realized from actual transactions and impairments 1.4  6.3  12.7  29.3 
Unrealized from changes in fair value of equity securities 79.2  57.3  (529.4) 439.3 
Total realized and unrealized investment gains (losses) 80.7  63.6  (516.7) 468.7 
Consolidation elimination adjustments (26.7) (30.3) (81.7) (93.0)
Consolidated revenues $ 1,883.8  $ 1,771.0  $ 4,556.0  $ 5,284.4 
Consolidated Pretax Income (Loss):
Total segment pretax operating income (loss) of
Company segments $ 217.4  $ 170.9  $ 525.0  $ 463.4 
Other sources - net (c) 8.7  17.7  27.8  44.2 
Consolidated investment gains (losses):
Realized from actual transactions and impairments 1.4  6.3  12.7  29.3 
Unrealized from changes in fair value of equity securities 79.2  57.3  (529.4) 439.3 
Total realized and unrealized investment gains (losses) 80.7  63.6  (516.7) 468.7 
Consolidated income (loss) before income
   taxes (credits) $ 306.9  $ 252.4  $ 36.1  $ 976.3 
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Quarters Ended Nine Months Ended
September 30, September 30,
2020 2019 2020 2019
Consolidated Income Tax Expense (Credits):
Total income tax expense (credits)
of Company segments $ 42.9  $ 34.7  $ 102.7  $ 91.9 
Other sources - net (c) .9  1.3  3.2  5.0 
Income tax expense (credits) on consolidated realized
and unrealized investment gains (losses) 16.9  13.5  (108.7) 98.7 
Consolidated income tax expense (credits) $ 60.9  $ 49.5  $ (2.7) $ 195.6 
September 30, December 31,
2020 2019
Consolidated Assets:
General Insurance $ 18,963.3  $ 17,870.0 
Title Insurance 1,780.9  1,695.0 
RFIG Run-off Business 565.0  615.1 
Total assets for the above company segments 21,309.4  20,180.2 
Other assets (c) 1,150.9  1,095.4 
Consolidation elimination adjustments (211.7) (199.3)
Consolidated assets $ 22,248.7  $ 21,076.3 

(a) Results for the Consumer Credit Indemnity ("CCI") run-off business are expected to be immaterial in the remaining run-off periods. Effective July 1, 2019 these results have been reclassified to the General Insurance segment for all future periods. Previously these results were reflected as part of the RFIG Run-off Business.
(b)    Segment pretax operating income (loss) is reported net of interest charges on intercompany financing arrangements with Old Republic's holding company parent for the following segments: General - $15.4 and $47.6 compared to $17.7 and $54.1 for the quarters and nine months ended September 30, 2020 and 2019, respectively, and Title - $.6 and $2.2 compared to $1.4 and $4.4 for the quarters and nine months ended September 30, 2020 and 2019, respectively.
(c)    Includes amounts for a small life and accident insurance business as well as those of the parent holding company and its internal corporate services subsidiaries.

7. Commitments and Contingent Liabilities:

(a) Legal Proceedings - Legal proceedings against the Company and its subsidiaries routinely arise in the normal course of business and usually pertain to claim matters related to insurance policies and contracts issued by its insurance subsidiaries. At September 30, 2020, the Company had no material non-claim litigation exposures in its consolidated business.

(b) Leases - Several of the Company’s subsidiaries maintain their offices in leased premises. A number of these leases provide for the payment of real estate taxes, insurance, and other operating expenses. In addition, many of the subsidiaries also lease equipment for use in their businesses. Substantially all of the Company’s leases are classified as operating leases. Effective January 1, 2019, the Company adopted new lease accounting guidance issued by the FASB which requires the balance sheet recognition of all leases with a term greater than 12 months. The Company’s adoption of this standard resulted in the establishment of a right of use asset ($226.9) and corresponding lease liability ($241.4) equal to the present value of future lease payments, reflected within sundry assets and liabilities in the consolidated balance sheet. Furthermore, the Company recognized $18.4, net of tax, in previously deferred gains associated with sale leaseback transactions as an adjustment to beginning retained earnings.

8. Debt:

Consolidated debt of Old Republic and its subsidiaries is summarized below:
September 30, 2020 December 31, 2019
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
4.875% Senior Notes issued in 2014 and due 2024 $ 397.7  $ 454.4  $ 397.3  $ 439.5 
3.875% Senior Notes issued in 2016 and due 2026 546.7  625.1  546.2  580.0 
Other miscellaneous debt 21.7  21.7  30.4  30.4 
Total debt $ 966.2  $ 1,101.3  $ 974.0  $ 1,050.0 

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

The following table shows a summary of financial liabilities disclosed, but not carried at fair value, segregated among the various input levels described in Note 3 above:
Carrying Fair
Value Value Level 1 Level 2 Level 3
Financial Liabilities:
Debt:
September 30, 2020 $ 966.2  $ 1,101.3  $ —  $ 1,079.6  $ 21.7 
December 31, 2019 $ 974.0  $ 1,050.0  $ —  $ 1,019.5  $ 30.4 

9. Income Taxes:

Tax positions taken or expected to be taken in a tax return by the Company are recognized in the financial statements when it is more likely than not that the position would be sustained upon examination by tax authorities. To the best of management's knowledge, there are no tax uncertainties that are expected to result in significant increases or decreases to unrecognized tax benefits within the next twelve month period. The Company views its income tax exposures as primarily consisting of timing differences whereby the ultimate deductibility of a taxable amount is highly certain but the timing of its deductibility is uncertain. Such differences relate principally to the timing of deductions for loss and premium reserves. As in prior examinations, the Internal Revenue Service ("IRS") could assert that claim reserve deductions were overstated thereby reducing the Company's statutory taxable income in any particular year. The Company believes that it establishes its reserves fairly and consistently at each balance sheet date, and that it would succeed in defending its tax position in these regards. Because of the impact of deferred tax accounting, the possible accelerated payment of tax to the IRS would not necessarily affect the annual effective tax rate. The Company classifies interest and penalties as income tax expense in the consolidated statement of income. The Company is not currently under audit by the IRS and 2017 and subsequent tax years remain open.


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OLD REPUBLIC INTERNATIONAL CORPORATION
MANAGEMENT ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS
Quarter and Nine Months Ended September 30, 2020 and 2019
($ in Millions, Except Share Data)
OVERVIEW

This management analysis of financial position and results of operations pertains to the consolidated accounts of Old Republic International Corporation ("Old Republic", "ORI", or "the Company"). The Company conducts its operations principally through three major regulatory segments, namely, its General (property and liability), Title, and the RFIG Run-off Business. A small life and accident insurance business, accounting for 0.2% of consolidated operating revenues for the nine months ended September 30, 2020 and 0.6% of consolidated assets as of that date, is included within the corporate and other caption of this report.

The consolidated accounts are presented in conformity with the Financial Accounting Standards Board's ("FASB") Accounting Standards Codification ("ASC") of accounting principles generally accepted in the United States of America ("GAAP"). As a publicly held company, Old Republic utilizes GAAP largely to comply with the financial reporting requirements of the Securities and Exchange Commission ("SEC"). From time to time the FASB and the SEC issue various releases, many of which require additional financial statement disclosures and provide related application guidance. Recent guidance issued by the FASB is summarized further in Note 1 of the Notes to Consolidated Financial Statements.

As a state regulated financial institution vested with the public interest, however, business of the Company's insurance subsidiaries is managed pursuant to the laws, regulations, and accounting practices of the various states in the U.S. and those of a small number of other jurisdictions outside the U.S. in which they operate. In comparison with GAAP, the statutory accounting practices reflect greater conservatism and comparability among insurers, and are intended to address the primary financial security interests of policyholders and their beneficiaries. Additionally, these practices also affect a significant number of important factors such as product pricing, risk bearing capacity and capital adequacy, the determination of Federal income taxes payable currently among ORI's tax-consolidated entities, and the upstreaming of dividends by insurance subsidiaries to the parent holding company. The major differences between these statutory financial accounting practices and GAAP are summarized in Note 1(a) to the consolidated financial statements included in Old Republic's 2019 Annual Report on Form 10-K.

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

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

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

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

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EXECUTIVE SUMMARY
Old Republic International Corporation reported the following consolidated results:
OVERALL RESULTS
Quarters Ended September 30, Nine Months Ended September 30,
2020 2019 % Change 2020 2019 % Change
Pretax income (loss) $ 306.9  $ 252.4  $ 36.1  $ 976.3 
Pretax investment gains (losses) 80.7  63.6  (516.7) 468.7 
Pretax income (loss) excluding investment gains (losses) $ 226.2  $ 188.7  19.9  % $ 552.8  $ 507.6  8.9  %
Net income (loss) $ 246.0  $ 202.8  $ 38.9  $ 780.6 
Net of tax investment gains (losses) 63.7  50.1  (408.0) 369.9 
Net income (loss) excluding investment gains (losses) $ 182.3  $ 152.7  19.4  % $ 446.9  $ 410.6  8.8  %
PER DILUTED SHARE
Quarters Ended September 30, Nine Months Ended September 30,
2020 2019 % Change 2020 2019 % Change
Net income (loss) $ .83  $ .67  $ .13  $ 2.59 
Net of tax investment gains (losses) .21  .16  (1.37) 1.23 
Net income (loss) excluding investment gains (losses) $ .62  $ .51  21.6  % $ 1.50  $ 1.36  10.3  %
SHAREHOLDERS' EQUITY
Sept. 30, Dec. 31,
2020 2019 % Change
Shareholders' equity: Total $ 6,074.6  $ 6,000.1  1.2  %
Per Common Share $ 20.39  $ 19.98  2.1  %

Growth in this year's third quarter and first nine months net income, exclusive of all investment gains and (losses) was driven by greater profitability in both the General and Title Insurance segments. Overall, the business produced consolidated combined ratios of 92.0% for the third quarter and 94.2% for the year-to-date period, improved from 94.4% and 95.2% registered in the comparable periods of 2019. Total and per share net income also continue to be significantly impacted by changes in the fair value of equity securities.

The COVID-19 pandemic and the associated governmental responses continued to have a widespread impact on the U.S. economy in the third quarter. While more Old Republic associates returned to the office during the quarter, a majority of its approximately 9,000 associates continue to work remotely. The pandemic's impact on employment levels, businesses, and other economic activities contributed to a slight reduction in earned premium and fee revenues in the General Insurance segment. The Title Insurance segment experienced strong growth in premium and fee revenues, and the RFIG Run-off business returned to profitability as delinquencies stabilized.

Net investment income decreased for the quarter and year-to-date periods as the impact of continued moderate growth in the invested asset base was more than offset by lower investment yields. Financial market performance continued to improve in the third quarter, favorably impacting the fair value of the Company’s equity and fixed-maturity securities. This favorable valuation, along with a higher retention of earnings in the business, resulted in book value per share rising to $20.39 at September 30, 2020 compared to $19.68 at June 30, 2020.
21


The economic impacts from the COVID-19 pandemic could affect future premium and fee revenues in the General Insurance and Title Insurance segments, and conversely underwriting expense ratios could rise. In the RFIG Run-off business, future claims experience could depend upon the continued, mitigating effects of loan forbearance programs mandated by the Federal government, and the rate at which employment levels recover. These outcomes notwithstanding, management firmly believes that the Company’s strong financial condition will enable it to weather these challenges, and most importantly allow its insurance subsidiaries to meet their obligations to customers, policyholders and their beneficiaries.

Old Republic's business is necessarily managed for the long run. In this context management's key objectives are to achieve a continuous, long-term improvement in operating results, and to ensure balance sheet strength for the primary needs of the insurance subsidiaries' underwriting and related services business. In this view, the evaluation of periodic and long-term results excludes consideration of all investment gains and (losses). Under Generally Accepted Accounting Principles ("GAAP"), however, net income (loss), which includes all specifically defined realized and unrealized investment gains and (losses), is the measure of total profitability.

In management's opinion, the focus on income (loss) excluding all investment gains and losses provides a better way to realistically analyze, evaluate, and establish accountability for the results and benefits that arise from the basic operations of the business. The inclusion of realized investment gains and (losses) in net income (loss) can mask the reality and trends in the fundamental operating results of the insurance business. That is because their realization is, more often than not, highly discretionary. It is usually affected by such randomly occurring factors as the timing of individual securities sales, tax-planning considerations, and modifications of investment management judgments about the direction of securities markets or the prospects of individual investees or industry sectors. Moreover, the inclusion of unrealized investment gains and (losses) in equity securities can further distort such operating results and trends therein and thus lead to even greater period-to-period fluctuations in reported net income (loss). The impact of the continuous volatility in stock market valuations is most evident in its net of tax effect on net income (loss) for the periods reported upon.
FINANCIAL HIGHLIGHTS
Quarters Ended September 30, Nine Months Ended September 30,
SUMMARY INCOME STATEMENTS: 2020 2019 % Change 2020 2019 % Change
Revenues:
Net premiums and fees earned $ 1,664.9  $ 1,561.7  6.6  % $ 4,644.8  $ 4,380.4  6.0  %
Net investment income 106.4  112.7  -5.6  329.3  337.8  -2.5 
Other income 31.7  32.9  -3.6  98.5  97.4  1.1 
Total operating revenues 1,803.0  1,707.3  5.6  5,072.7  4,815.7  5.3 
Investment gains (losses):
Realized from actual transactions 1.4  6.3  12.7  31.3 
Realized from impairments —  —  —  (2.0)
Unrealized from changes in fair value of equity securities 79.2  57.3  (529.4) 439.3 
Total investment gains (losses) 80.7  63.6  (516.7) 468.7 
Total revenues 1,883.8  1,771.0  4,556.0  5,284.4 
Operating expenses:
Claim costs 638.1  663.7  -3.9  1,884.8  1,905.1  -1.1 
Sales and general expenses 929.1  845.0  10.0  2,603.0  2,372.0  9.7 
Interest and other charges 9.5  9.7  -2.5  31.8  30.8  3.4 
Total operating expenses 1,576.8  1,518.6  3.8  % 4,519.8  4,308.0  4.9  %
Pretax income (loss) 306.9  252.4  36.1  976.3 
Income taxes (credits) 60.9  49.5  (2.7) 195.6 
Net income (loss) $ 246.0  $ 202.8  $ 38.9  $ 780.6 
COMMON STOCK STATISTICS:
Components of net income (loss) per share:
Basic net income (loss) excluding investment gains (losses)
$ 0.62  $ 0.51  21.6  % $ 1.50  $ 1.37  9.5  %
Net investment gains (losses):
Realized from actual transactions and impairments —  0.02  0.03  0.08 
Unrealized from changes in fair value of equity securities 0.21  0.15  (1.40) 1.15 
Basic net income (loss) $ 0.83  $ 0.68  $ 0.13  $ 2.60 
Diluted net income (loss) excluding investment gains (losses)
$ 0.62  $ 0.51  21.6  % $ 1.50  $ 1.36  10.3  %
Net investment gains (losses):
Realized from actual transactions and impairments —  0.01  0.03  0.08 
Unrealized from changes in fair value of equity securities 0.21  0.15  (1.40) 1.15 
Diluted net income (loss) $ 0.83  $ 0.67  $ 0.13  $ 2.59 
Cash dividends on common stock $ 0.21  $ 1.20  $ 0.63  $ 1.60 
Book value per share $ 20.39  $ 19.31  5.6  %
Management believes the information in sections A to G and J of the table on the following page highlight the most meaningful, realistic indicators of ORI's segmented and consolidated financial performance. The information underscores the necessity of reviewing reported results by separating the inherent volatility of securities markets and their above-noted impact on reported net income (loss).
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Major Segmented and Consolidated Elements of Income (Loss)
Quarters Ended September 30, Nine Months Ended September 30,
2020 2019 % Change 2020 2019 % Change
A. Net premiums, fees, and other income:
General insurance $ 861.9  $ 870.2  -1.0  % $ 2,532.8  $ 2,551.9  -0.7  %
Title insurance 789.1  673.8  17.1  2,067.7  1,772.3  16.7 
Corporate and other 2.9  3.3  -11.8  9.0  10.2  -11.5 
Other income 31.7  32.9  -3.6  98.5  97.4  1.1 
Subtotal 1,685.8  1,580.3  6.7  4,708.2  4,431.9  6.2 
RFIG run-off business (c) 10.8  14.2  -24.0  35.1  45.8  -23.4 
Consolidated $ 1,696.6  $ 1,594.6  6.4  % $ 4,743.3  $ 4,477.8  5.9  %
B. Underwriting and related
services income (loss):
General insurance $ 38.7  $ 19.7  96.1  % $ 89.5  $ 74.6  20.0  %
Title insurance