OLD REPUBLIC INTERNATIONAL CORP

Consolidated Overview

Premiums & Fees

The major sources of Old Republic's consolidated net earned premiums and fees for the periods shown were as follows:

Consolidated net premiums and fees earned increased 9.6% and 8.2% for the third quarter and first nine months of 2024, respectively, resulting from strong growth in General Insurance, and moderate growth in Title Insurance. For the third quarter and first nine months of 2023, consolidated net premiums and fees earned were down 9.4% and 15.1%, respectively, as a result of lower revenues for Title Insurance in both direct and agency operations, while General Insurance grew by 10.6% for the quarter and 7.3% for the first nine months.

Net Investment Income

The following tables reflect the investment bases as of the indicated dates, the investment income earned, and resulting yields. Because the Company can exercise little control over fair values, management evaluates yields on the investment income earned in relation to the cost of the underlying invested assets.

Net investment income increased 17.3% and 18.8% for the third quarter and first nine months of 2024, respectively, driven by higher investment yields. During the third quarter and first nine months of 2024, the Company reinvested in corporate fixed income securities with an average yield of 4.5% and 4.8%, respectively, compared to an average book yield on disposals of 3.1% and 3.4%, respectively. Prior periods presented are also reflective of movements within the interest rate environment.

Loss and Loss Adjustment Expenses

Total loss costs are affected by the amount of paid claims and the adequacy of reserve estimates established for current and prior years' claim occurrences at each balance sheet date.

The following table shows a breakdown of gross and net of reinsurance loss reserve estimates for major types of insurance coverages as of September 30, 2024 and December 31, 2023:

(a) RFIG Run-off reserves were classified as held-for-sale as of December 31, 2023 in the consolidated balance sheet, and as such, that period presented in the above table excludes these reserves. See Note 2 of the Consolidated Financial Statements for further discussion.

A summary of changes in aggregate reserves for loss and loss adjustment expenses is included in Note 4 of the Consolidated Financial Statements.

Net loss and loss adjustment expenses incurred as a percentage of premiums and related fee revenues of the Company's two reportable operating segments and for consolidated operations were as follows:

The Company's reserve for loss and loss adjustment expenses represents the accumulation of estimates of ultimate losses payable, including incurred but not reported losses and loss adjustment expenses. The establishment of loss reserves by the Company's insurance subsidiaries is a reasonably complex and dynamic process influenced by a large variety of factors. Consequently, reserves established are a reflection of: the opinions of a large number of persons; the application and interpretation of historical precedent and trends; expectations as to future developments; and management's judgment in interpreting all such factors. At any point in time, the Company is exposed to the possibility of higher or lower than anticipated loss costs and the resulting changes in estimates are recorded in operations of the periods during which they are made.

The increases in the consolidated loss and loss adjustment expense ratios for the periods presented above are impacted by the shift in mix with General Insurance contributing more to the total in more recent periods. Additionally, the 2024 ratios were also affected by lower levels of favorable prior year loss reserve development for both General Insurance and Title Insurance, partially offset by improvement in the current year loss ratio for Title Insurance.

Management 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 losses incurred. Management maintains hold periods that vary primarily by line of business. However, reserves may be increased within a holding period when the initial expected loss ratio is believed to be inadequate. Conversely, in certain cases, reserves may be released within a holding period when the redundancies are expected to exceed the upper end of the actuarially determined range, or if an increase to an original pick within a hold period is subsequently deemed to be excessive. No representation is made nor is any guaranty given that ultimate net losses and related costs will not develop in future years to be significantly greater or lower than currently established reserve estimates. In management's opinion, such changes in net losses and related costs are not likely to have a material effect on the Company's consolidated financial position, although they could materially affect the consolidated results of operations for any one annual or interim reporting period. See further discussion in the Company's 2023 Annual Report on Form 10-K under Item 1A - Risk Factors.

Underwriting, Acquisition, and Other Expenses

The following table sets forth the expense ratios registered by each reportable segment and in consolidation for the periods shown:

Variations in the Company's consolidated expense ratios reflect a continually changing mix of coverages sold and costs of producing business. To a significant degree, expense ratios for both the General and Title Insurance segments are mostly reflective of variable costs, such as commissions or similar charges, that rise or decline along with corresponding changes in premium and fee income and can fluctuate with line of coverage mix. General operating expenses are routinely subject to timing as well as investments in business expansion and information technology.

The decreases in the consolidated expense ratios for the periods presented above are impacted by the shift in mix with General Insurance contributing more to the total. The consolidated expense ratios also benefitted from the additional scale, offset by investments being made in technology.

Combined Ratios

The combined ratios of net loss and loss adjustment expenses and underwriting expenses are as follows:

Net Investment Gains (Losses)

The Company's investment policies are designed to produce a stable source of income from interest and dividends, support the protection of capital, and provide sufficient liquidity to meet insurance underwriting and other obligations as they become payable in the future.

The following table reflects the composition of net investment gains or losses for the periods shown.

Dispositions of fixed income securities from scheduled maturities and early calls were 48.1% and 54.3% of total dispositions occurring in the first nine months of 2024 and 2023, respectively. Realized gain (loss) activity in 2024 was primarily the result of portfolio management, including the Company's monitoring of concentration limits at the individual legal entity levels, tax planning, and interest rate environment considerations. Sales activity within the fixed income portfolio allowed the Company to increase its book yield on that portfolio quicker than anticipated, taking full advantage of the current interest rate environment, in a tax efficient manner.

The 2023 full year impairment charge primarily reflects an estimated loss on the then pending sale of the RFIG Run-off mortgage insurance business, and to a lesser extent, impairment losses recorded on fixed income securities that the Company intended to and subsequently disposed of to facilitate certain structural changes to a deferred compensation plan, as well as a small credit loss.

During 2022, the Company rebalanced the investment portfolio by reducing equity security holdings and increasing fixed income holdings as reinvestment rates began to materially improve. Additionally, 2022 includes investment impairment charges of $123.5 on fixed income securities, which management intended to and subsequently disposed of during the year, driven primarily by tax planning considerations.

Income Taxes

The effective consolidated income tax rate was 20.6% and 20.4% in the third quarter and first nine months of 2024, respectively, compared to 17.7% and 20.0% in the third quarter and first nine months of 2023, respectively. The rates for each period reflect primarily the varying proportions of pretax operating income derived from partially tax preferred investment income (principally tax-exempt interest and dividend income).

Segment Overview

General Insurance

Summary Operating Results

Premiums & Fees

The percentage of net premiums earned for major insurance coverages in the General Insurance segment was as follows:

General Insurance net premiums earned increased 13.9% and 13.6% for the third quarter and first nine months of 2024, respectively, driven by a combination of premium rate increases, high renewal retention ratios, and new business production, including contributions from recently established underwriting subsidiaries. Premium growth occurred across most lines of coverage, but was most pronounced within commercial auto, property, and general liability. Largely reflecting market conditions, there were declines in public D&O and transactional risk coverages (both included within financial indemnity) and to a lesser extent, home warranty. The decline in home warranty coverages (included within Home and Auto Warranty) was more than offset in both 2024 periods by growth in a new auto warranty program. While commercial auto, general liability and property continued to achieve strong rate increases, rate declines continued in public D&O and workers' compensation. Investments in new underwriting subsidiaries have contributed, and are expected to continue to contribute, to the Company's production of lines outside of commercial auto and workers' compensation. Most of the business produced by the new underwriting subsidiaries is underwritten as excess and surplus (E&S) premiums. E&S gross premiums written increased 21% during the third quarter, with the majority of growth attributable to new underwriting subsidiaries, established since 2015.

Loss and Loss Adjustment Expenses

The percentage of net loss and loss adjustment expenses measured against premiums earned by major types of insurance coverage were as follows:

Overall, the loss ratios for General Insurance in the third quarter and first nine months of 2024 were within expectations; however, the favorable loss reserve changes from the prior periods were lower when compared to the historically high levels experienced in 2023. Net favorable reserve development in the quarter came from several lines of coverage, including:

•workers’ compensation, albeit at a much lower level than 2023 (accident years 2011-2019 were favorable while years prior to 2011 and 2020 through 2023 developed unfavorably);

•commercial auto (accident years 2017-2022 were favorable while 2023 developed unfavorably); and

•property, which includes commercial multi-peril (accident years 2015, 2019 and 2023 were favorable).

Favorable development in the quarter was partially offset by net unfavorable development experienced within:

•general liability, which includes excess coverages, albeit at a lower level than 2023; and

•transactional risk (included within financial indemnity), which is a small component of the professional liability business (approximately $3.0 of premium in the quarter) and is a low frequency, high severity product.

Sales and General Expenses

The reported expense ratios for the current periods continue to reflect a benefit from scale, and investments in new underwriting subsidiaries and information technology. Higher personnel and information technology costs in 2023 contributed to those expense ratios.

Title Insurance

Summary Operating Results

Premiums & Fees

The following table shows the percentage distribution of Title Insurance premium and fee revenues by production sources:

Title Insurance net premiums and fees earned increased by 3.5% for the third quarter of 2024 and were flat for the first nine months of 2024. Directly produced revenues grew in both 2024 periods, whereas agency produced revenues, which are reported on a lag relative to direct revenues, increased for the quarter and declined for the first nine months. Commercial premiums decreased 6% and represent approximately 20% of net premiums earned in the third quarter of 2024 as compared to 22% in 2023. Title Insurance net premiums and fees earned decreased 29.3% and 36.0% for the quarter and first nine months of 2023, respectively, as both directly produced and agency produced revenues declined.

Loss and Loss Adjustment Expenses

Title Insurance loss ratios have remained in the low single digits for a number of years due to a continuation of favorable trends in claims frequency and severity. The loss ratios for Title Insurance in the third quarter and first nine months of 2024 reflect slightly lower levels of favorable prior year loss reserve development and an improvement in the current year loss ratio driven by favorable claim trends.

Sales and General Expenses

Sales and general expenses for the first nine months of 2023 were impacted by the recovery of a $17.2 state sales tax assessment, which reduced the corresponding expense ratio by 0.9 points. Excluding the impact of the state sales tax assessment, the expense ratios for both 2024 periods improved as a result of expense management.

FINANCIAL POSITION

The Company's financial position at September 30, 2024 reflects increases in assets, liabilities, and shareholders' equity of 8.8%, 11.5%, and 0.5%, respectively, when compared to the immediately preceding year-end. Cash, investments, and accrued investment income represent 59.5% and 61.1% of consolidated assets as of September 30, 2024 and December 31, 2023, respectively. As of September 30, 2024, cash, investments, and accrued investment income increased by 6.0% to $17,152.9.

Investment Portfolio

Old Republic continues to adhere to its long-term policy of investing primarily in investment grade, marketable securities. At both September 30, 2024 and December 31, 2023, nearly all of the Company's investments consisted of marketable securities. The investment portfolio has extremely limited exposure to high risk or illiquid asset classes such as limited partnerships, derivatives, hedge funds or private equity investments. In addition, the Company does not engage in hedging or securities lending transactions, nor does it invest in securities with values predicated on non-regulated financial instruments with unfunded counter-party risk attributes. At September 30, 2024, the Company had no fixed income investments in default as to principal and/or interest.

Short-term maturity investment positions reflect a large variety of factors including current operating needs, expected operating cash flows, debt maturities, and investment strategy considerations. Accordingly, the future level of short-term investments will vary and respond to the interplay of these factors and may, as a result, increase or decrease from current levels.

The Company does not own or utilize derivative financial instruments for the purpose of hedging, enhancing the overall return of its investment portfolio, or reducing the cost of its debt obligations. With regard to its equity portfolio, the Company does not own any options nor does it engage in any type of option writing. Traditional investment management tools and techniques are employed to address the yield and valuation exposures of the invested assets base. The fixed income investment portfolio is managed so as to limit various risks inherent in the bond market. Credit risk is addressed through asset diversification and the purchase of investment grade securities. Reinvestment rate risk is reduced by concentrating on non-callable issues, and by taking asset-liability matching considerations into account. Purchases of mortgage- and asset-backed securities, which have variable principal prepayment options, are generally avoided. Market value risk is limited through the purchase of bonds of intermediate maturity. The combination of these investment management practices is expected to produce a more stable fixed income investment portfolio that is not subject to extreme interest rate sensitivity and principal deterioration.

The fair value of the Company's fixed income investment portfolio is sensitive, however, to fluctuations in the level of interest rates, but not materially affected by changes in anticipated cash flows caused by any prepayments. The impact of interest rate movements on the fixed income investment portfolio generally affects net unrealized gains or losses. As a general rule, rising interest rates enhance currently available yields but typically lead to a reduction in the fair value of existing fixed income investments. By contrast, a decline in such rates reduces currently available yields but usually serves to increase the fair value of the existing fixed income investment portfolio. All such changes in fair value of securities are reflected, net of deferred income taxes, directly in the common shareholders' equity account, and as a separate component of the consolidated statements of comprehensive income. Given the Company's inability to forecast or control the movement of interest rates, Old Republic sets the maturity spectrum of its fixed income securities portfolio within parameters of estimated liability payouts, and focuses the overall portfolio on high quality investments. By so doing, Old Republic believes it is reasonably assured of its ability to hold securities to maturity as it may deem necessary in changing environments, and of ultimately recovering their aggregate cost.

Possible future declines in fair values for Old Republic's fixed income portfolio would negatively affect the common shareholders' equity account at any point in time, but would not necessarily result in the recognition of realized investment losses.

The following tables show certain information relating to the Company's fixed income and equity portfolios as of the dates shown.

(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.

In the above tables, the unrealized gains and losses on fixed income securities are primarily deemed to reflect changes in the interest rate environment.

The Company's equity portfolio consists predominantly of high-quality common stocks of U.S. companies with long-term records of reasonable earnings growth and steadily increasing dividends.

In the above tables, the unrealized losses on fixed income securities are primarily deemed to reflect changes in the interest rate environment.

Duration is used as a measure of bond price sensitivity to interest rate changes. A duration of 3.8 as of September 30, 2024 implies that a 100 basis point parallel increase in interest rates from current levels would result in a decline in the fair value of the fixed income investment portfolio of approximately 3.8%.

Liquidity and Capital Resources

The parent holding company meets its liquidity and capital needs principally through dividends and interest on intercompany financing arrangements paid by its subsidiaries. The insurance subsidiaries' ability to pay cash dividends and interest to the parent holding company is generally restricted by law or subject to approval of the insurance regulatory authorities. Based on December 31, 2023 statutory balances, the Company can receive up to $854.5 in ordinary dividends from its subsidiaries in 2024 without the prior approval of regulatory authorities, of which $474.2 has been received through September 30, 2024. The liquidity achievable through such permitted dividend payments is sufficient to cover the parent holding company's currently expected regularly recurring cash outflows represented mostly by interest, anticipated cash dividend payments to shareholders, operating expenses, and the near-term capital needs of its operating company subsidiaries.

Old Republic's total capitalization of $8,433.8 at September 30, 2024 consisted of debt of $1,988.4 and common shareholders' equity of $6,445.3. Changes in the common shareholders' equity account reflect primarily net income excluding net investment gains (losses), realized and unrealized gains (losses), dividend payments to shareholders, and share repurchases for the period then ended. At September 30, 2024, the Company's consolidated debt to equity ratio was 30.9%. This ratio was temporarily elevated due to the issuance of $400.0 of senior notes, the proceeds of which were used to retire the senior notes that matured on October 1, 2024.

Old Republic has paid a cash dividend without interruption since 1942 (83 years), and it has raised the annual cash dividend payout for each of the past 43 years. The dividend rate is reviewed and approved by the Board of Directors on a quarterly basis each year. In establishing each year's cash dividend rate, the Company does not follow a strict formulaic approach. Rather, it favors a gradual rise in the annual dividend rate that is largely reflective of long-term consolidated operating earnings trends. Accordingly, each year's dividend rate is set judgmentally in consideration of such key factors as the dividend paying capacity of the Company's insurance subsidiaries, the trends in average annual earnings for the five to ten most recent calendar years, and management's long-term expectations for the Company's consolidated business and its individual operating subsidiaries.

During the quarter, the Company returned total capital to shareholders of approximately $232, comprised of $67 in dividends, and $165 of share repurchases (5.0 million shares at an average price of $32.97 per share). For the first nine months, this resulted in total capital returned of approximately $975, including $207 in dividends and nearly $768 of share repurchases (25.1 million shares at an average price of $30.85 per share). Following the close of the quarter and through October 31, 2024, the Company repurchased $51 of additional shares (1.4 million shares at an average price of $35.52 per share), leaving approximately $356 remaining under the most recent authorization approved by the Company's Board of Directors in March 2024.

Other Assets

Substantially all of the Company's receivables are current. Reinsurance recoverable balances on paid or estimated unpaid losses are deemed recoverable from solvent reinsurers or have otherwise been reduced by allowances for estimated credit losses. Deferred policy acquisition costs are estimated by taking into account the direct costs relating to the successful acquisition of new or renewal insurance contracts and evaluating their recoverability on the basis of recent trends in loss costs.

Reinsurance Programs

In order to maintain premium production within its capacity and limit maximum losses for which it might become liable under its policies, Old Republic, as is common practice in the insurance industry, may cede a portion or all of its premiums and related liabilities on certain classes of insurance, individual policies, or blocks of business to other insurers and reinsurers. Further discussion of the Company's reinsurance programs can be found in Part 1 of the Company's 2023 Annual Report on Form 10-K.

CRITICAL ACCOUNTING ESTIMATES

The Company's annual and interim financial statements incorporate a large number and types of estimates relative to matters which are highly uncertain at the time the estimates are made. The estimation process required of an insurance enterprise such as Old Republic is by its very nature highly dynamic inasmuch as it necessitates a continuous evaluation, analysis, and quantification of factual data as it becomes known to the Company. As a result, actual experienced outcomes can differ from the estimates made at any point in time and thus affect future periods' reported revenues, expenses, net income or loss, and financial condition.

Old Republic believes that its most critical accounting estimate relates to the establishment of reserves for losses and loss adjustment expenses. The major assumptions and methods used in setting this estimate are summarized in the Company's 2023 Annual Report on Form 10-K.

OTHER INFORMATION

Reference is here made to "Segment Information" appearing elsewhere herein.

Historical data pertaining to the operating results, liquidity, and other performance indicators applicable to an insurance enterprise such as Old Republic are not necessarily indicative of results to be achieved in succeeding years. In addition to the factors cited below, the long-term nature of the insurance business, seasonal and annual patterns in premium production and incidence of claims, changes in yields obtained on invested assets, changes in government policies and free markets affecting inflation rates and general economic conditions, and changes in legal precedents or the application of law affecting the settlement of disputed and other claims can have a bearing on period-to-period comparisons and future operating results.

Some of the oral or written statements made in the Company's reports, press releases, and conference calls following earnings releases, can constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements generally include words such as "expect," "predict," "estimate," "will," "should," "anticipate," "believe," and similar expressions. Any such forward-looking statements involve assumptions, uncertainties, and risks that may affect the Company's future performance. With regard to Old Republic's General Insurance segment, its results can be particularly affected by the level of market competition, which is typically a function of available capital and expected returns on such capital among competitors, the levels of investment yields and inflation rates, and periodic changes in claim frequency and severity patterns caused by natural disasters, weather conditions, accidents, illnesses, work-related injuries, claims development and the impact on loss reserves, adequacy and availability of reinsurance, uncertainties in underwriting and pricing risks, and unanticipated external events. Title Insurance results can be affected by similar factors, and by changes in national and regional housing demand and values, the availability and cost of mortgage loans, and employment trends. Life and accident insurance earnings can be affected by the levels of employment and consumer spending, changes in mortality and health trends, and alterations in policy lapsation rates. At the parent holding company level, operating earnings or losses are generally reflective of the amount of debt outstanding and its cost, interest income on temporary holdings of short-term investments, and period-to-period variations in the costs of administering the Company's widespread operations. In addition, results could be particularly affected by technology and security breaches or failures, including cybersecurity incidents.

A more detailed listing and discussion of the risks and other factors which affect the Company's risk-taking insurance business are included in Part I, Item 1A - Risk Factors, of the Company's 2023 Annual Report on Form 10-K, and the various risks, uncertainties, and other factors that are included from time to time in other Securities and Exchange Commission filings.

Any forward-looking statements or commentaries speak only as of their dates. Old Republic undertakes no obligation to publicly update or revise any and all such comments, whether as a result of new information, future events or otherwise, and accordingly they may not be unduly relied upon.

OLD REPUBLIC INTERNATIONAL CORPORATION