Old Republic International (ORI) - 2022 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION This section presents the company's unaudited consolidated financial statements, including balance sheets, income statements, cash flows, and detailed notes, along with management's analysis of financial performance and position Consolidated Balance Sheets Assets slightly decreased, liabilities increased, and common shareholders' equity significantly declined due to comprehensive loss Consolidated Balance Sheet Highlights | Metric | Sep 30, 2022 ($ Millions) | Dec 31, 2021 ($ Millions) | Change (%) | | :-------------------------------- | :------------------------ | :------------------------ | :--------- | | Total Assets | 24,947.0 | 24,981.8 | (0.1)% | | Total Liabilities | 19,268.9 | 18,088.6 | 6.5% | | Total Common Shareholders' Equity | 5,678.1 | 6,893.2 | (17.6)% | | Fixed Income Securities (fair value) | 10,841.8 | 10,675.7 | 1.6% | | Short-term investments (fair value) | 1,371.5 | 565.7 | 142.4% | | Equity securities (fair value) | 3,045.4 | 5,302.8 | (42.6)% | | Loss and loss adjustment expense reserves | 12,174.7 | 11,425.5 | 6.6% | | Unearned premiums | 2,993.1 | 2,559.4 | 17.0% | Consolidated Statements of Income Net loss reported for Q3 and lower net income for 9M 2022, driven by substantial unrealized investment losses from equity securities Consolidated Statements of Income Highlights | Metric | Q3 2022 ($ Millions) | Q3 2021 ($ Millions) | 9M 2022 ($ Millions) | 9M 2021 ($ Millions) | | :------------------------------------------ | :------------------- | :------------------- | :------------------- | :------------------- | | Total operating revenues | 2,098.2 | 2,204.9 | 6,287.7 | 6,317.3 | | Net investment gains (losses) | (377.1) | (192.6) | (549.5) | 303.7 | | Net Income (Loss) | (91.7) | 88.7 | 174.3 | 907.3 | | Net Income (Loss) Per Share (Diluted) | (0.31) | 0.29 | 0.57 | 3.00 | | Net premiums earned | 1,862.3 | 1,941.7 | 5,578.5 | 5,542.5 | | Net investment income | 115.1 | 111.6 | 329.2 | 323.6 | | Loss and loss adjustment expenses | 624.3 | 615.4 | 1,864.4 | 1,829.3 | | Underwriting, acquisition, and other expenses | 1,195.8 | 1,270.8 | 3,604.5 | 3,601.8 | Consolidated Statements of Comprehensive Income Comprehensive loss for Q3 and 9M 2022, driven by significant net unrealized losses on securities impacting other comprehensive income Consolidated Statements of Comprehensive Income Highlights | Metric | Q3 2022 ($ Millions) | Q3 2021 ($ Millions) | 9M 2022 ($ Millions) | 9M 2021 ($ Millions) | | :-------------------------------------------------------------------------------- | :------------------- | :------------------- | :------------------- | :------------------- | | Net Income (Loss) As Reported | (91.7) | 88.7 | 174.3 | 907.3 | | Net unrealized gains (losses) on securities not included in statements of income, net of tax | (142.3) | (54.3) | (796.3) | (197.9) | | Total other comprehensive income (loss) | (151.9) | (57.2) | (806.1) | (190.8) | | Comprehensive Income (Loss) | (243.7) | 31.5 | (631.7) | 716.4 | Consolidated Statements of Preferred Stock and Common Shareholders' Equity Common shareholders' equity significantly decreased due to net losses, substantial dividends, and negative accumulated other comprehensive income Common Shareholders' Equity Changes | Metric | Sep 30, 2022 ($ Millions) | Dec 31, 2021 ($ Millions) | 9M 2022 Change ($ Millions) | 9M 2021 Change ($ Millions) | | :------------------------------------ | :------------------------ | :------------------------ | :-------------------------- | :-------------------------- | | Common Stock (end of period) | 304.3 | 307.5 | (3.2) | 2.9 | | Additional Paid-in Capital (end of period) | 1,299.7 | 1,376.1 | (76.4) | 56.9 | | Retained Earnings (end of period) | 4,874.9 | 5,214.0 | (339.1) | 518.5 | | Accumulated Other Comprehensive Income (Loss) (end of period) | (728.0) | 78.0 | (806.0) | (190.8) | | Total Common Shareholders' Equity (end of period) | 5,678.1 | 6,893.2 | (1,215.1) | 500.8 | | Dividends on common shares (9M) | (513.4) | (648.8) | N/A | N/A | - Cash dividends per common share of $1.23 were declared for Q3 2022 (vs $1.72 in Q3 2021), and $1.69 for 9M 2022 (vs $2.16 in 9M 2021), including a special dividend of $308.4 million paid in September 2022[13] Consolidated Statements of Cash Flows Operating cash decreased, investing activities had a smaller outflow, and financing activities resulted in a significant net cash outflow Consolidated Statements of Cash Flows Highlights (Nine Months Ended September 30) | Metric | 2022 ($ Millions) | 2021 ($ Millions) | | :-------------------------------------- | :---------------- | :---------------- | | Net cash provided by operating activities | 903.4 | 970.6 | | Net cash used in investing activities | (354.7) | (1,124.5) | | Net cash used in financing activities | (604.3) | 168.7 | | Increase (decrease) in cash | (55.7) | 14.7 | | Cash, end of period | 102.4 | 133.4 | - Financing activities in 9M 2022 included $512.5 million in dividends on common shares (including a special dividend of $308.4 million) and $104.8 million for treasury stock acquired[15] Notes to Consolidated Financial Statements Detailed disclosures on accounting policies, investments, loss reserves, and segment information offer crucial context to the unaudited financial statements Note 1 - Summary of Significant Accounting Policies Key accounting policies cover GAAP adherence, fair value treatment for fixed income and equity securities, revenue recognition, and loss reserve estimation - Fixed income securities are classified as available for sale, with fair value changes reflected in shareholders' equity. Equity securities are reported at fair value, with changes reflected as unrealized investment gains (losses) in the income statement[18][19] - Title premium and fee revenues from direct operations are recognized at escrow closing, while revenues from independent agents are recognized upon receipt, which can have a 3-4 month lag[23] - Loss and loss adjustment expenses are based on complex estimates influenced by historical experience, legal theories, actuarial studies, and economic conditions, with changes recorded in the periods they are made[24][26] Note 2 - Investments Investment portfolio saw decreased equity and increased fixed income, with significant unrealized losses from interest rate changes and equity declines Fixed Income Securities by Type (Fair Value) | Type | Sep 30, 2022 ($ Millions) | Dec 31, 2021 ($ Millions) | | :-------------------------- | :------------------------ | :------------------------ | | U.S. & Canadian Governments | 2,009.7 | 2,158.5 | | Tax-exempt | 871.5 | 989.2 | | Corporate | 7,960.5 | 7,527.9 | | Total | 10,841.8 | 10,675.7 | Equity Securities (Fair Value) | Metric | Sep 30, 2022 ($ Millions) | Dec 31, 2021 ($ Millions) | | :---------------- | :------------------------ | :------------------------ | | Cost | 2,151.0 | 3,766.5 | | Estimated Fair Value | 3,045.4 | 5,302.8 | Net Investment Income (Nine Months Ended September 30) | Source | 2022 ($ Millions) | 2021 ($ Millions) | | :---------------------- | :---------------- | :---------------- | | Fixed income securities | 219.6 | 209.7 | | Equity securities | 107.1 | 116.6 | | Short-term investments | 7.3 | 0.1 | | Net investment income | 329.2 | 323.6 | - Net realized investment losses in Q3 and 9M 2022 included $120.9 million and $123.5 million, respectively, from fixed income securities intended for disposal due to tax planning[32] - Pretax unrealized investment losses from changes in fair value of equity securities were $(350.8) million for Q3 2022 and $(641.8) million for 9M 2022[33] Note 3 - Loss and Loss Adjustment Expenses Gross loss and loss adjustment expense reserves increased, with favorable development in General and Title Insurance, partially offset by financial indemnity Gross Reserves for Loss and Loss Adjustment Expenses | Metric | Sep 30, 2022 ($ Millions) | Dec 31, 2021 ($ Millions) | | :------------------------------------ | :------------------------ | :------------------------ | | Gross reserves at end of period | 12,174.7 | 11,425.5 | - For 9M 2022, General Insurance experienced favorable loss reserve development from commercial auto and workers' compensation, offset by unfavorable development in financial indemnity (public company D&O)[42] - Title Insurance saw favorable development in 2017-2019 policy years, and RFIG Run-off benefited from positive trends in delinquency cure rates[43] Note 4 - Income Taxes Tax positions are recognized when likely to be sustained, with no significant uncertainties expected, and no current IRS audit for 2019 onwards - No tax uncertainties are expected to result in significant increases or decreases to unrecognized tax benefits within the next twelve months[44] - The company is not currently under audit by the IRS, and 2019 and subsequent tax years remain open[44] Note 5 - Net Income Per Share Basic and diluted net income (loss) per share decreased significantly for Q3 and 9M 2022, reflecting overall net loss Net Income (Loss) Per Share | Metric | Q3 2022 | Q3 2021 | 9M 2022 | 9M 2021 | | :-------------------------------------------------------------------------------- | :------ | :------ | :------ | :------ | | Basic and diluted earnings per share - income (loss) available to common stockholders | (0.31) | 0.29 | 0.57 | 3.01 | - Anti-dilutive common stock equivalents excluded from EPS computations were 10,651,301 for Q3 2022 and 2,653,750 for 9M 2022[46] Note 6 - Credit Losses Credit losses are recognized on financial assets via an allowance account, with no material concentrations of credit risks Credit Allowance Composition | Metric | Sep 30, 2022 ($ Millions) | Dec 31, 2021 ($ Millions) | | :-------------------------- | :------------------------ | :------------------------ | | Reinsurance recoverables | 16.0 | 16.0 | | Accounts and notes receivable | 27.7 | 24.1 | - The company is not exposed to material concentrations of credit risks as to any one issuer of investment securities[48] Note 7 - Debt Consolidated debt slightly increased to $1,596.6 million, with fair value decreasing due to market interest rates, primarily Senior Notes Consolidated Debt Summary | Debt Type | Sep 30, 2022 Carrying Amount ($ Millions) | Sep 30, 2022 Fair Value ($ Millions) | Dec 31, 2021 Carrying Amount ($ Millions) | Dec 31, 2021 Fair Value ($ Millions) | | :-------------------------------- | :-------------------------------------- | :----------------------------------- | :-------------------------------------- | :----------------------------------- | | 4.875% Senior Notes due 2024 | 398.8 | 400.3 | 398.4 | 435.8 | | 3.875% Senior Notes due 2026 | 547.8 | 520.5 | 547.3 | 597.0 | | 3.850% Senior Notes due 2051 | 642.8 | 455.0 | 642.6 | 702.9 | | Other miscellaneous debt | 7.1 | 7.1 | — | — | | Total debt | 1,596.6 | 1,383.1 | 1,588.5 | 1,735.7 | Note 8 - Common Share Repurchases A $450 million share repurchase program was authorized, with $104.8 million in common shares repurchased in Q3 2022 - A $450 million share repurchase program was authorized on August 18, 2022[51] Share Repurchase Activity (Q3 2022) | Period | Total Number of Shares Purchased | Average Price Paid Per Share ($) | Approximate Dollar Value Remaining Under Plan ($ Millions) | | :-------------------------- | :------------------------------- | :------------------------------- | :------------------------------------------------------- | | Sep 1 - Sep 30, 2022 | 4,877,473 | 21.49 | 345.1 | - Following the quarter-end and through November 3, an additional 6.0 million shares were repurchased for $136.8 million (average price of $22.48), with $208.2 million remaining under the authorization[51] Note 9 - Commitments and Contingent Liabilities Legal proceedings are routine, primarily insurance claim matters, with no material non-claim litigation exposures - Legal proceedings usually pertain to claim matters related to insurance policies and contracts[52] - As of September 30, 2022, the company had no material non-claim litigation exposures[52] Note 10 - Information About Segments of Business The company operates through General Insurance, Title Insurance, and RFIG Run-off segments, with varied performance driven by market conditions - The company's segments are General Insurance, Title Insurance, and RFIG Run-off, with a small life and accident business in Corporate & Other[53][59] - Management's key objectives are highly profitable operating results over the long term and balance sheet strength, evaluating results by excluding investment gains (losses)[53][73][74] Segment Pretax Operating Income (Loss) (9M Ended Sep 30) | Segment | 2022 ($ Millions) | 2021 ($ Millions) | Change (%) | | :-------------------- | :---------------- | :---------------- | :--------- | | General Insurance | 448.1 | 410.0 | 9.3% | | Title Insurance | 263.8 | 378.3 | (30.3)% | | RFIG Run-off | 31.3 | 20.9 | 49.7% | | Corporate & other | 14.6 | 19.5 | (25.1)% | | Consolidated | 757.9 | 828.8 | (8.6)% | Segment Total Revenues Excluding Investment Gains (Losses) (9M Ended Sep 30) | Segment | 2022 ($ Millions) | 2021 ($ Millions) | Change (%) | | :-------------------- | :---------------- | :---------------- | :--------- | | General Insurance | 3,189.7 | 2,996.7 | 6.4% | | Title Insurance | 3,032.3 | 3,252.0 | (6.8)% | | RFIG Run-off | 23.3 | 34.2 | (31.9)% | | Corporate & other | 146.9 | 122.0 | 20.4% | | Consolidated | 6,287.7 | 6,317.3 | (0.5)% | Management Analysis of Financial Position and Results of Operations This section analyzes the company's financial performance and position for 9M 2022, highlighting operating results, investment portfolio, and capital management Overview The company operates through General, Title, and RFIG Run-off segments, focusing on profitable underwriting, balance sheet strength, and stable investment income - The company's operations are structured into General Insurance, Title Insurance, and RFIG Run-off segments[59] - Management's primary focus is on achieving favorable underwriting results over cycles and maintaining a sound financial condition, with investment management aiming for stability of income, capital protection, and liquidity[62][63] - The investment philosophy emphasizes value, credit quality, and long-term holding periods, with no exposure to high-risk or illiquid asset classes like CDOs, credit default swaps, or derivatives[63][94] - Results are best evaluated over 10-year intervals to account for economic and underwriting cycles[64] Executive Summary Old Republic reported Q3 pretax and net losses, and reduced 9M income, primarily due to investment losses and declining Title Insurance performance Consolidated Overall Results | Metric | Q3 2022 ($ Millions) | Q3 2021 ($ Millions) | 9M 2022 ($ Millions) | 9M 2021 ($ Millions) | | :------------------------------------------ | :------------------- | :------------------- | :------------------- | :------------------- | | Pretax income (loss) | (119.6) | 106.0 | 208.3 | 1,132.6 | | Pretax investment gains (losses) | (377.1) | (192.6) | (549.5) | 303.7 | | Pretax income (loss) excluding investment gains (losses) | 257.5 | 298.6 | 757.9 | 828.8 | | Net income (loss) | (91.7) | 88.7 | 174.3 | 907.3 | | Combined ratio | 91.4% | 89.8% | 91.4% | 90.4% | Per Diluted Share Results | Metric | Q3 2022 ($) | Q3 2021 ($) | 9M 2022 ($) | 9M 2021 ($) | | :------------------------------------------ | :---------- | :---------- | :---------- | :---------- | | Net income (loss) | (0.31) | 0.29 | 0.57 | 3.00 | | Net income (loss) excluding investment gains (losses) | 0.68 | 0.79 | 1.99 | 2.21 | Shareholders' Equity (Book Value) | Metric | Sep 30, 2022 ($ Millions) | Dec 31, 2021 ($ Millions) | Change (%) | | :---------------- | :------------------------ | :------------------------ | :--------- | | Total | 5,678.1 | 6,893.2 | (17.6)% | | Per Common Share | 18.92 | 22.76 | (16.9)% | - General Insurance pretax operating income rose 15%, while Title Insurance pretax operating income reduced by 46% due to increasing mortgage interest rates[69] - The company returned $479.1 million to shareholders in Q3 2022, comprising $374.3 million in common stock dividends (including a $1.00/share special dividend) and $104.8 million in share repurchases[71] Detailed Management Analysis This section details performance drivers for consolidated and segment-level results, including premiums, investment income, and underwriting ratios Consolidated Overview Consolidated net premiums decreased, net investment income increased, combined ratio rose, and significant net investment losses were recorded Consolidated Net Earned Premiums and Fees | Period | 2022 ($ Millions) | 2021 ($ Millions) | Change (%) | | :-------------------------- | :---------------- | :---------------- | :--------- | | Q3 | 1,943.3 | 2,055.4 | (5.5)% | | 9M | 5,844.6 | 5,881.6 | (0.6)% | Consolidated Net Investment Income | Period | 2022 ($ Millions) | 2021 ($ Millions) | Change (%) | | :-------------------------- | :---------------- | :---------------- | :--------- | | Q3 | 115.1 | 111.6 | 3.1% | | 9M | 329.2 | 323.6 | 1.7% | Consolidated Combined Ratios | Period | 2022 (%) | 2021 (%) | | :-------------------------- | :------- | :------- | | Q3 | 91.4 | 89.8 | | 9M | 91.4 | 90.4 | Consolidated Net Investment Gains (Losses) | Period | 2022 ($ Millions) | 2021 ($ Millions) | | :------------------------------------------------ | :---------------- | :---------------- | | Q3 Total realized and unrealized investment gains (losses) | (377.1) | (192.6) | | 9M Total realized and unrealized investment gains (losses) | (549.5) | 303.7 | - The effective consolidated income tax rates were (23.3)% for Q3 2022 and 16.4% for 9M 2022, compared to 16.2% and 19.9% for the same periods in 2021, reflecting varying proportions of partially tax-preferred investment income[115] Segment Overview Segment performance varied, with General Insurance growing, Title Insurance declining due to mortgage rates, and RFIG Run-off improving General Insurance General Insurance net premiums increased, driven by commercial auto and workers' compensation, with an improved loss ratio and higher pretax operating income General Insurance Summary Operating Results | Metric | Q3 2022 ($ Millions) | Q3 2021 ($ Millions) | 9M 2022 ($ Millions) | 9M 2021 ($ Millions) | | :-------------------------------- | :------------------- | :------------------- | :------------------- | :------------------- | | Net premiums earned | 967.3 | 902.8 | 2,821.8 | 2,629.2 | | Segment pretax operating income (loss) | 167.6 | 145.8 | 448.1 | 410.0 | | Loss ratio | 62.7% | 64.8% | 64.0% | 66.3% | | Expense ratio | 27.3% | 26.5% | 27.4% | 26.0% | | Combined ratio | 90.0% | 91.3% | 91.4% | 92.3% | - Net premiums earned growth was driven by commercial auto and workers' compensation lines, supported by premium rate increases, high renewal retention, and new business production[78][117] - Favorable reserve development of 4.7% in Q3 2022 came predominantly from commercial auto and workers' compensation, partially offset by unfavorable development in financial indemnity (public company D&O)[79][119] - The current period loss costs reflect several years of premium rate increases, underwriting actions, a shift in line of coverage mix, and a nominal amount from Hurricane Ian ($10.0 million net retention)[79][119] Title Insurance Title Insurance net premiums declined significantly due to rising mortgage rates, leading to decreased pretax operating income and elevated expense ratios Title Insurance Summary Operating Results | Metric | Q3 2022 ($ Millions) | Q3 2021 ($ Millions) | 9M 2022 ($ Millions) | 9M 2021 ($ Millions) | | :-------------------------------- | :------------------- | :------------------- | :------------------- | :------------------- | | Net premiums and fees earned | 968.1 | 1,142.1 | 2,997.3 | 3,218.7 | | Segment pretax operating income (loss) | 73.3 | 135.7 | 263.8 | 378.3 | | Loss ratio | 2.7% | 2.9% | 2.8% | 3.0% | | Expense ratio | 91.0% | 86.1% | 89.5% | 86.2% | | Combined ratio | 93.7% | 89.0% | 92.3% | 89.2% | - The decline in premiums and fees was driven by increasing mortgage interest rates, leading to a steep reduction in refinance activity and, to a lesser extent, purchase activity[83][124] - Commercial transaction activity showed strong premium growth, accounting for 21.1% of Q3 2022 earned premium (vs 15.4% in Q3 2021)[124] - Expense ratios were elevated due to lower directly produced revenues (higher fixed expenses) and a greater proportion of agency-produced revenues (higher overall expense ratio)[84][126] RFIG Run-off Segment Operating Results - Mortgage Insurance RFIG Run-off segment saw declining premiums but increased pretax operating income due to lower loss costs and improving delinquency cure rates RFIG Run-off Summary Operating Results | Metric | Q3 2022 ($ Millions) | Q3 2021 ($ Millions) | 9M 2022 ($ Millions) | 9M 2021 ($ Millions) | | :-------------------------------- | :------------------- | :------------------- | :------------------- | :------------------- | | Net premiums earned | 5.5 | 7.7 | 18.1 | 25.4 | | Pretax operating income (loss) | 9.2 | 8.4 | 31.3 | 20.9 | | Loss ratio | (93.3)% | (14.5)% | (96.5)% | 13.7% | | Expense ratio | 55.3% | 39.0% | 52.7% | 38.5% | | Combined ratio | (38.0)% | 24.5% | (43.8)% | 52.2% | - Loss costs reflect fewer newly reported delinquencies and improving trends in cure rates[87][131] RFIG Run-off Net Risk in Force | Metric | Sep 30, 2022 ($ Millions) | Dec 31, 2021 ($ Millions) | | :---------------- | :------------------------ | :------------------------ | | Total | 1,219.3 | 1,505.4 | Corporate & Other Operating Results Corporate & Other segment reported decreased pretax operating income, with quarterly net investment income declining and nine-month interest expense increasing Corporate & Other Summary Operating Results | Metric | Q3 2022 ($ Millions) | Q3 2021 ($ Millions) | 9M 2022 ($ Millions) | 9M 2021 ($ Millions) | | :------------------------------------ | :------------------- | :------------------- | :------------------- | :------------------- | | Net life and accident premiums earned | 2.3 | 2.6 | 7.2 | 8.2 | | Net investment income | 12.9 | 13.8 | 34.8 | 26.1 | | Corporate & other pretax operating income (loss) | 7.2 | 8.6 | 14.6 | 19.5 | - For the first nine months, interest expense increased due to the issuance of $650 million of debt in Q2 2021, partially offset by net investment income from a higher level of investments and higher investment yields[91] Financial Position Financial position showed slightly decreased assets, increased liabilities, and significantly decreased common shareholders' equity, with a stable investment portfolio - Total assets decreased by 0.1%, liabilities increased by 6.5%, and common shareholders' equity decreased by 17.6% compared to December 31, 2021[133] - Cash and invested assets decreased by 7.9% to $15,491.8 million as of September 30, 2022[133] Summary Consolidated Balance Sheet Balance sheet reflects slight asset decline (decreased equity, increased fixed income), rising liabilities, and reduced shareholders' equity Summary Consolidated Balance Sheet Highlights | Metric | Sep 30, 2022 ($ Millions) | Dec 31, 2021 ($ Millions) | | :------------------------------------ | :------------------------ | :------------------------ | | Total assets | 24,947.0 | 24,981.8 | | Cash and invested assets | 15,491.8 | 16,818.9 | | Policy liabilities | 3,182.6 | 2,752.0 | | Loss and loss adjustment expense reserves | 12,174.7 | 11,425.5 | | Total liabilities | 19,268.9 | 18,088.6 | | Shareholders' equity | 5,678.1 | 6,893.2 | Cash, Invested Assets, and Shareholders' Equity Invested assets are 80% fixed income, 20% equity, with equity holdings reduced. Book value per share decreased by 16.9% due to declining fair values Cash and Invested Assets | Metric | Sep 30, 2022 ($ Millions) | Dec 31, 2021 ($ Millions) | Change (%) | | :------------------------------------------ | :------------------------ | :------------------------ | :--------- | | Fixed income securities, cash and other invested assets | 12,446.4 | 11,516.1 | 8.1% | | Equity securities | 3,045.4 | 5,302.8 | (42.6)% | | Total per balance sheet | 15,491.8 | 16,818.9 | (7.9)% | Shareholders' Equity Per Share | Metric | Sep 30, 2022 ($) | Dec 31, 2021 ($) | Change (%) | | :------------------------------------------ | :--------------- | :--------------- | :--------- | | Total | 18.92 | 22.76 | (16.9)% | | Net change (9M) | (3.84) | 0.21 | N/A | - The investment portfolio is approximately 80% fixed income and short-term investments, and 20% equity securities, with a focus on high-quality common stocks of U.S. companies[95][96] - The company performs regular stress tests of the equities portfolio to ensure financial strength is not undermined by market downdrafts[96] Capitalization Total capitalization was $7,274.7 million, with a debt-to-equity ratio of 28.1%, reflecting a higher proportion of debt Total Capitalization | Metric | Sep 30, 2022 ($ Millions) | Dec 31, 2021 ($ Millions) | | :-------------------------- | :------------------------ | :------------------------ | | Total debt | 1,596.6 | 1,588.5 | | Common shareholders' equity | 5,678.1 | 6,893.2 | | Total capitalization | 7,274.7 | 8,481.7 | Capitalization Ratios | Metric | Sep 30, 2022 (%) | Dec 31, 2021 (%) | | :-------------------------- | :--------------- | :--------------- | | Debt | 21.9 | 18.7 | | Common shareholders' equity | 78.1 | 81.3 | - The consolidated debt to equity ratio was 28.1% at September 30, 2022[150] Investment Portfolio Investment portfolio is 80% fixed income and 20% equity, emphasizing credit quality and intermediate maturity, avoiding high-risk assets - The investment portfolio does not contain high-risk or illiquid asset classes, including CDOs, credit default swaps, hybrid securities, ABS, GICs, SIVs, auction rate securities, limited partnerships, derivatives, hedge funds, or private equity investments[94][137] - Approximately 80% of the consolidated investment portfolio is allocated to fixed income and short-term investments, and 20% to equity securities[95] Fixed Income Securities Stratified by Credit Quality | Rating | Sep 30, 2022 (%) | Dec 31, 2021 (%) | | :-------------------- | :--------------- | :--------------- | | Total investment grade | 98.4 | 97.8 | - Gross unrealized losses on fixed income securities are primarily driven by changes in the interest rate environment[143][146] - The average maturity and duration of fixed income securities remained at 4.4 and 4.0 years, respectively, as of September 30, 2022[147] Liquidity and Capital Resources Parent company liquidity is from subsidiary dividends and interest, with a long history of cash dividends and a $450 million share repurchase program - The parent holding company's liquidity is met through dividends and interest from subsidiaries, with $440.4 million in ordinary dividends received through September 30, 2022, out of a permitted $982.0 million for the year[149] - Old Republic has paid a cash dividend without interruption since 1942 (81 years) and has raised the annual cash dividend payout for each of the past 41 years[151] - A $450 million share repurchase program and a special, one-time cash dividend of $1.00 per share were authorized on August 18, 2022[152] - Mortgage guaranty insurance subsidiaries paid extraordinary dividends of $35.0 million in Q3 2022 and $105.0 million in 9M 2022 to the parent company[154] Other Assets Receivables are current, and reinsurance recoverable balances are deemed recoverable or reduced by credit loss allowances - Substantially all receivables are current[156] - Reinsurance recoverable balances are deemed recoverable or reduced by allowances for estimated credit losses[156] Reinsurance Programs The company uses reinsurance programs to manage premium capacity and limit losses by ceding premiums and liabilities to other insurers - The company cedes a portion of its premiums and liabilities to other insurers and reinsurers to manage capacity and limit losses[158] Termination of Shareholders' Rights Plan The Board terminated the shareholders' rights plan (poison pill) on August 18, 2022, reflecting commitment to long-term stakeholder interests - The shareholders' rights plan (poison pill) was terminated on August 18, 2022, after being in place for more than three decades[160] - The decision reflects the Board's regular assessment of governance attributes and engagement with institutional shareholders[160] Critical Accounting Estimates Financial statements rely on critical estimates for loss reserves and reinsurance recoverability, where actual outcomes may differ - The most critical accounting estimates relate to establishing reserves for losses and loss adjustment expenses and the recoverability of reinsured outstanding losses[163] - Actual outcomes can differ from estimates, affecting future reported revenues, expenses, net income/loss, and financial condition[162] Other Information Historical data may not predict future results due to market fluctuations. Forward-looking statements involve inherent assumptions, uncertainties, and risks - Historical data is not necessarily indicative of future outcomes due to the long-term nature of insurance, market fluctuations, and changes in legal/economic conditions[165] - Forward-looking statements involve assumptions, uncertainties, and risks, including those related to market competition, investment yields, inflation, claim patterns, housing demand, mortgage costs, employment trends, and cybersecurity[166][167] - The company continually evaluates its IT hardware, security infrastructure, and business practices to respond to cybersecurity risks[167] Quantitative and Qualitative Disclosure About Market Risk Primary market risks are interest rate risk (fixed income) and equity price risk (equity securities), with no material changes from 2021 - Primary market risks include interest rate risk (fixed income) and equity price risk (equity securities)[171] - Market risk exposures have not materially changed from the 2021 Annual Report on Form 10-K[172] Controls and Procedures Disclosure controls and procedures were effective as of September 30, 2022, with no material changes in internal control over financial reporting - Disclosure controls and procedures were evaluated and deemed effective as of September 30, 2022[173] - No material changes in internal control over financial reporting occurred during the three months ended September 30, 2022[174] - Internal control over financial reporting is designed to provide reasonable assurance regarding financial reporting reliability, but it has inherent limitations[175][176] PART II - OTHER INFORMATION This section covers legal proceedings, risk factors, equity security sales, exhibits, and official signatures, providing additional non-financial disclosures Item 1 - Legal Proceedings Legal proceedings are consistent with Note 9, primarily involving routine insurance claim matters - Legal proceedings are consistent with Note 9, primarily pertaining to routine insurance claim matters[178] Item 1A - Risk Factors There have been no material changes to the risk factors previously disclosed in the company's 2021 Annual Report on Form 10-K - No material changes to risk factors disclosed in the 2021 Annual Report on Form 10-K[179] Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 4.8 million common shares for $104.8 million in September 2022, part of a $450 million program Share Repurchase Activity (September 2022) | Period | Total Number of Shares Purchased | Average Price Paid Per Share ($) | Approximate Dollar Value Remaining Under Plan ($ Millions) | | :-------------------------- | :------------------------------- | :------------------------------- | :------------------------------------------------------- | | Sep 1 - Sep 30, 2022 | 4,877,473 | 21.49 | 345.1 | - The share repurchase program, authorized for $450 million, has no expiration date and may be suspended, modified, or discontinued at any time[180] Item 6 - Exhibits This section lists exhibits filed with Form 10-Q, including CEO/CFO certifications and XBRL-related documents - Exhibits include certifications by the CEO and CFO (31.1, 31.2, 32.1, 32.2) and XBRL Instance Document, Schema, Calculation, Definition, Label, and Presentation Linkbases (101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE)[182] Signature Report signed by Frank J. Sodaro, SVP, CFO, and Principal Accounting Officer on November 4, 2022 - Signed by Frank J. Sodaro, Senior Vice President, Chief Financial Officer, and Principal Accounting Officer[185] - Date of signature: November 4, 2022[185] Exhibit Index This index provides a detailed list of all exhibits accompanying Form 10-Q, including certifications and XBRL documents - The index lists certifications by the CEO and CFO (31.1, 31.2, 32.1, 32.2) and XBRL documents (101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE)[187]