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Old Republic Reports Results For The Fourth Quarter And Full Year 2017

CHICAGO, Jan. 25, 2018 /PRNewswire/ -- Old Republic International Corporation (NYSE: ORI) today reported 14% greater pretax operating income for the final quarter of 2017; for the year, however, it dropped approximately 16%. Results for each of these periods were affected by certain previously announced operating charges. Net income-wise, however, the charges were outpaced by greater than average realized gains from sales of investment securities. Additionally, 2017 net operating income and net income were influenced by year-end 2017 deferred income tax adjustments emanating from recently enacted changes in U.S. Federal income tax rates. The separate and aggregate effects of these matters on year-over-year comparisons of segmented and consolidated earnings are shown in the three tables following the Financial Highlights immediately below.


Financial Highlights (a)




Quarters Ended December 31,


Years Ended December 31,




2017


2016


Change


2017


2016


Change



Operating revenues:


















General insurance

$

904.0


$

847.6


6.7%


$

3,531.6


$

3,354.7


5.3%



Title insurance


626.0



628.9


-0.5



2,325.0



2,244.1


3.6



Corporate and other


12.4



12.7


-1.9



50.1



35.4


41.3



    Subtotal


1,542.6



1,489.3


3.6



5,906.8



5,634.3


4.8



RFIG run-off business


29.5



44.6


-34.0



144.6



193.2


-25.2



Total

$

1,572.1


$

1,533.9


2.5%


$

6,051.5


$

5,827.6


3.8%



Pretax operating income (loss):


















General insurance                            

$

124.1


$

76.8


61.5%


$

340.3


$

319.9


6.4%



Title insurance


64.2



85.6


-25.0



237.1



210.2


12.8



Corporate and other


(2.5)



4.1


-162.3



9.9



13.0


-24.1



    Subtotal


185.8



166.7


11.5



587.3



543.3


8.1



RFIG run-off business


14.8



9.3


58.9



(73.5)



69.8


-205.4



Total


200.6



176.0


14.0



513.8



613.1


-16.2



Pretax realized investment gains (losses):


















From sales


154.0



14.7


N/M



211.6



77.8


172.0



From impairments


-



-


-



-



(4.9)


100.0



Realized investment gains (losses)


154.0



14.7


N/M



211.6



72.8


190.4



Consolidated pretax income (loss)


354.7



190.7


85.9



725.4



686.0


5.7



Income taxes (credits)


55.0



58.7


-6.3



164.8



219.0


-24.7



Net income (loss)

$

299.6


$

131.9


127.0%


$

560.5


$

466.9


20.0%



Components of diluted earnings per share (see analysis on pages 2 - 4):








Net operating income (loss):


















General insurance                          

$

0.05


$

0.19


-73.7%


$

0.57


$

0.76


-25.0%



Title insurance


0.15



0.19


-21.1



0.53



0.46


15.2



Corporate and other


(0.07)



0.03


N/M



-



0.09


-100.0



Subtotal


0.13



0.41


-68.3



1.10



1.31


-16.0



RFIG run-off business                   


0.20



0.02


N/M



0.01



0.15


-93.3



Total


0.33



0.43


-23.3



1.11



1.46


-24.0



Net realized investment gains (losses)


0.68



0.03


N/M



0.81



0.16


N/M



Net income (loss)

$

1.01


$

0.46


119.6%


$

1.92


$

1.62


18.5%



Cash dividends declared per share (b)

$

1.1900


$

0.1875


N/M


$

1.7600


$

0.7500


134.7%



Ending book value per share









$

17.72


$

17.16


3.3%























N/M = Not meaningful / (a) Unaudited; All amounts in this report are stated in millions except per share data and percentages. / (b) A special cash dividend of $1.00 per share was declared in late December 2017 in addition to the regular quarterly dividend payment of $0.1900 per share.

























The tables on pages 3 and 4 set forth the effects of certain previously announced 2017 charges which do not normally occur but are properly includable in the determination of net operating income and net income. In addition, the 2017 non-recurring adjustments for deferred income taxes emanating from revised U.S. Federal corporate tax rates effective on January 1, 2018 are also shown. All of these accounting effects are provided as an aid to the understanding and comparisons of reported earnings for 2017 and 2016 periods.

In management's opinion, however, the most relevant period-over-period comparisons of segmented and consolidated pretax operating income, net operating income, net income, and pertinent per share amounts obtained from the more detailed tables shown on pages 3 and 4, all exclusive of the effect of deferred tax revaluation adjustments flowing through the income statement, are as follows:


Segmented Results




General


Title


RFIG


Corporate


Consolidated


Insurance


Insurance


Run-off


& Other


Results

Quarter Ended December 31, 2017:















Pretax operating income (loss) as reported

$

124.1


$

64.2


$

14.8


$

(2.5)


$

200.6
















Net of tax operating income (loss) (35% rate basis):















Total

$

85.7


$

41.9


$

9.7


$

(0.7)


$

136.4

Per diluted share

$

0.28


$

0.14


$

0.03


$

0.01


$

0.46
















Net income (35% rate basis):















Total













$

236.5

Per diluted share













$

0.79































Quarter Ended December 31, 2016:















Pretax operating income (loss) as reported

$

76.8


$

85.6


$

9.3


$

4.1


$

176.0
















Net of tax operating income (loss) (35% rate basis):















Total

$

56.2


$

55.5


$

6.1


$

4.3


$

122.3

Per diluted share

$

0.19


$

0.19


$

0.02


$

0.03


$

0.43
















Net income (35% rate basis):















Total













$

131.9

Per diluted share













$

0.46































Year Ended December 31, 2017:















Pretax operating income (loss) as reported

$

340.3


$

237.1


$

(73.5)


$

9.9


$

513.8
















Net of tax operating income (loss) (35% rate basis):















Total

$

240.3


$

154.9


$

(47.5)


$

12.5


$

360.0

Per diluted share

$

0.80


$

0.52


$

(0.16)


$

0.08


$

1.24
















Net income (35% rate basis):















Total













$

497.6

Per diluted share













$

1.70































Year Ended December 31, 2016:















Pretax operating income (loss) as reported

$

319.9


$

210.2


$

69.8


$

13.0


$

613.1
















Net of tax operating income (loss) (35% rate basis):















Total

$

225.2


$

135.9


$

45.7


$

12.6


$

419.6

Per diluted share

$

0.76


$

0.46


$

0.15


$

0.09


$

1.46
















Net income (35% rate basis):















Total













$

466.9

Per diluted share













$

1.62

















Detailed analysis of certain elements included in pretax and post-tax earnings for the periods shown below:


Segmented Results




General


Title


RFIG


Corporate


Consolidated


Insurance


Insurance


Run-off


& Other


Results

Quarter Ended December 31, 2017:















A -   Pretax operating income (loss) before the aforementioned charges

 

$

 

122.1


 

$

 

85.4


 

$

 

14.8


 

$

 

8.0


 

$

 

230.4

        Charges for additions to 2017 estimated employee incentive awards


(10.0)



(21.2)



-



(1.0)



(32.3)

        Adjustment of previously estimated life insurance reserves and cost assumptions


-



-



-



(9.5)



(9.5)

        General insurance hurricane claim provisions


12.0



-



-



-



12.0

B -   Pretax operating income (loss) as reported


124.1



64.2



14.8



(2.5)



200.6

1) Less current and deferred income taxes (35% rate basis)


38.4



22.3



5.1



(1.8)



64.2

C -   Net of tax operating income (loss) (35% rate basis):















1) Total


85.7



41.9



9.7



(0.7)



136.4

2) Per diluted share


0.28



0.14



0.03



0.01



0.46

D -   Revaluation of deferred taxes to the new 21% rate of 2018:















1) Total


(70.5)



2.5



51.1



(24.9)



(41.8)

2) Per diluted share


(0.23)



0.01



0.17



(0.08)



(0.13)

E -   Net operating income (loss) as reported:















1) Total (C1 + D1)


14.9



44.4



60.9



(25.8)



94.5

2) Per diluted share (C2 + D2)

$

0.05


$

0.15


$

0.20


$

(0.07)



0.33

F -   1) Pretax realized investment gains














154.0

2) Less: current and deferred income taxes (35% rate basis)



53.9

3) Sub-total (35% rate basis)



100.1

4) Revaluation of deferred taxes on unrealized gains to the new 21% rate of 2018



104.9

5) Net realized gains after tax:




a) Total












205.1

b) Per diluted share: Calculated on basis of 35% rate (F3)












0.33

c)                                   Effect of revaluation (F4)












0.35

d)                                  Total












0.68

G -   Net income total:















1) Based on 35% rate (C1 + F3)














236.5

2) Effect of deferred tax revaluation (D1 + F4)














63.1

3) Total













$

299.6

H -   Net income (loss) per diluted share:















1) Calculated on basis of 35% rate (G1)













$

0.79

2) Effect of deferred tax revaluation (G2)














0.22

3) Total













$

1.01































Quarter Ended December 31, 2016:















B -   Pretax operating income (loss) as reported

$

76.8


$

85.6


$

9.3


$

4.1


$

176.0

1) Less current and deferred income taxes (35% rate basis)


20.6



30.0



3.1



(0.2)



53.6

C -   Net of tax operating income (loss) (35% rate basis):















1) Total


56.2



55.5



6.1



4.3



122.3

2) Per diluted share

$

0.19


$

0.19


$

0.02


$

0.03



0.43

F -   1) Pretax realized investment gains














14.7

2) Less: current and deferred income taxes (35% rate basis)



5.1

3) Net realized gains after tax:















a) Total














9.5

b) Per diluted share














0.03

G & H - Net income:















1) Total (C1 + F3a)













$

131.9

2) Per diluted share (C2 + F3b)













$

0.46

















Detailed analysis of certain elements included in pretax and post-tax earnings for the periods shown below:


Segmented Results




General


Title


RFIG


Corporate


Consolidated


Insurance


Insurance


Run-off


& Other


Results

Year Ended December 31, 2017:















A -   Pretax operating income (loss) before the aforementioned charges

 

$

 

358.3


 

$

 

258.3


 

$

 

56.5


 

$

 

20.4


 

$

 

693.6

        Charges for additions to 2017 estimated employee incentive awards


(10.0)



(21.2)



-



(1.0)



(32.3)

        Adjustment of previously estimated life insurance reserves and cost assumptions


-



-



-



(9.5)



(9.5)

        General insurance hurricane claim provisions


(8.0)



-



-



-



(8.0)

        Third quarter RFIG final settlement and probable dispositions of all known litigated and other claims costs
















-



-



(130.0)



-



(130.0)

B -   Pretax operating income (loss) as reported


340.3



237.1



(73.5)



9.9



513.8

1) Less current and deferred income taxes (35% rate basis)


100.0



82.2



(26.0)



(2.6)



153.8

C -   Net of tax operating income (loss) (35% rate basis):















1) Total


240.3



154.9



(47.5)



12.5



360.0

2) Per diluted share


0.80



0.52



(0.16)



0.08



1.24

D -   Revaluation of deferred taxes















to the new 21% rate of 2018:















1) Total


(70.5)



2.5



51.1



(24.9)



(41.8)

2) Per diluted share


(0.23)



0.01



0.17



(0.08)



(0.13)

E -   Net operating income (loss) as reported:















1) Total (C1 + D1)


169.6



157.4



3.5



(12.5)



318.0

2) Per diluted share (C2 + D2)

$

0.57


$

0.53


$

0.01


$

-



1.11

F -   1) Pretax realized investment gains














211.6

2) Less: current and deferred income taxes (35% rate basis)



74.0

3) Sub-total (35% rate basis)



137.6

4) Revaluation of deferred taxes on unrealized gains to the new 21% rate of 2018



104.9

5) Net realized gains after tax:















a) Total














242.5

b) Per diluted share: Calculated on basis of 35% rate (F3)












0.46

c)                                   Effect of revaluation (F4)












0.35

d)                                  Total












0.81

G -   Net income total:















1) Based on 35% rate (C1 + F3)














497.6

2) Effect of deferred tax revaluation (D1 + F4)














63.1

3) Total













$

560.5

H -   Net income (loss) per diluted share:















1) Calculated on basis of 35% rate (G1)













$

1.70

2) Effect of revaluation (G2)














0.22

3) Total













$

1.92































Year Ended December 31, 2016:















B -   Pretax operating income (loss) as reported

$

319.9


$

210.2


$

69.8


$

13.0


$

613.1

1) Less current and deferred income taxes (35% rate basis)


94.6



74.3



24.0



0.4



193.5















C -   Net of tax operating income (loss) (35% rate basis):















1) Total


225.2



135.9



45.7



12.6



419.6

2) Per diluted share

$

0.76


$

0.46


$

0.15


$

0.09



1.46

F -   1) Pretax realized investment gains














72.8

2) Less: current and deferred income taxes (35% rate basis)



25.5

3) Net realized gains after tax:















a) Total














47.3

b) Per diluted share














0.16

G & H - Net income















1) Total (C1 + F3a)













$

466.9

2) Per diluted share (C2 + F3b)













$

1.62

















The preceding tables show both operating and net income to highlight the effects of realized investment gains or losses on period-to-period earnings comparisons. Management uses operating income, a non-GAAP financial measure, to evaluate and better explain operating performance, believing that the measure enhances an understanding of Old Republic's core business results. Operating income, however, does not replace GAAP net income as a measure of total profitability.

The recognition of realized investment gains or losses can be highly discretionary due to such factors as the timing of individual securities sales, the recording of estimated losses from write-downs of impaired securities, tax-planning and tax rate considerations, and changes in investment management judgments regarding the direction of securities markets or the future prospects of individual investees or industry sectors.

In recent years, asset management operations have to a large extent been oriented toward an enhancement of income from interest and dividends to counter a perniciously low yield environment. The strategy has led to a minimization of non-income producing or low-yielding securities. Proceeds from such securities' sales and maturities, as well as newly investable funds have largely been directed to purchases of higher yielding common shares of American companies with distinguished long-term records of earnings and dividend growth. More recently, the Company has allotted greater investable funds to tax-exempt issues which generally provide pretax yields lower than those of fully taxable corporate or U.S. Government fixed maturity securities but tend to generate better post-tax yields. The latter approach may be reconsidered, however, in light of the newly established U.S. Federal income tax rates that took effect on January 1, 2018.

The Company reported net realized investment gains of $154.0 in the fourth quarter 2017 compared to $14.7 in the same period of 2016. The gains, substantially higher than those realized in comparable periods in recent years, stem from managed sales of investment portfolio securities whose values had risen to higher than expected levels over the course of 2017's strong securities market. For the year 2017, net realized gains were $211.6 while gains for the year 2016 totaled $72.8. The net-of-tax proceeds from gross securities sales of $464.5 in 2017's final quarter have been reinvested in common stocks expected to return moderately higher dividend income than the securities that were sold. For the fourth quarter and year 2017, net realized investment gains (losses) includes $104.9 of deferred income tax credits to adjust to the new 21% tax rate pertaining to unrealized gains (losses) as of December 31, 2017. Deferred income taxes on unrealized gains (losses) would normally be a part of the statement of comprehensive income rather than the income statement.

Beginning in 2018, in pursuance of recently established rules of the Financial Accounting Standards Board, the Company will include the market-driven changes of its equity investments' valuations in periodic income statements. The inclusion of such unrealized gains or losses is likely to produce greater period-to-period fluctuations in reported net income particularly at times of significant instability or volatility in the securities markets. The change, however, will have no impact on the conduct of the Company's business or evaluation of its core operating performance, nor on the determination of GAAP shareholders' equity at any point in time.

General Insurance Results – The table below shows the major elements affecting this segment's performance for each of the periods reported upon.




General Insurance Group


Quarters Ended December 31,


Years Ended December 31,


2017


2016


Change


2017


2016


Change

Net premiums earned

$

797.1


$

743.5


7.2%


$

3,110.8


$

2,936.3


5.9%

Net investment income


80.9



78.5


3.0



318.9



312.1


2.2

Other income


26.0



25.6


1.6



101.8



106.2


-4.1

Operating revenues


904.0



847.6


6.7



3,531.6



3,354.7


5.3

Benefits and claim costs                 (a)


524.9



547.5


-4.1



2,234.4



2,143.1


4.3

Sales and general expenses


239.2



208.3


14.8



893.8



833.9


7.2

Interest and other costs


15.6



14.8


5.8



62.9



57.6


9.2

Total operating expenses


779.9



770.7


1.2



3,191.3



3,034.7


5.2

Pretax operating income (loss)      (b)

$

124.1


$

76.8


61.5%


$

340.3


$

319.9


6.4%

















Benefit and claim ratio


65.9%



73.6%





71.8%



73.0%



Expense ratio


26.8



24.6





25.5



24.8



Composite underwriting ratio


92.7%



98.2%





97.3%



97.8%



















______

(a)

General insurance pretax results for the quarter and year ended December 31, 2017 include hurricane-related claim costs currently estimated at $(12.0) and $8.0, respectively.

(b)

In connection with the run-off mortgage guaranty ("MI") and consumer credit indemnity ("CCI") combination, $1.8 and $(121.1) of pretax operating gains (losses) for the fourth quarter and year 2017, and $(7.5) and $(33.8) for the same periods of 2016, respectively, were retained by certain general insurance companies pursuant to various quota share and stop loss reinsurance agreements. All of these amounts, however, have been reclassified such that 100% of the CCI run-off business is reported in the RFIG run-off segment.

Positive general insurance earned premiums trends throughout 2017 were unevenly distributed among various insurance coverages and sources of business. Gains were registered most prominently in commercial automobile (trucking), risk management and national accounts, home and auto warranty, and in a new underwriting facility established in early 2015. On the other hand, premium growth was constrained by low volume in a large account contractors book of business faced with a particularly competitive market place, and by reduced opportunities in gas and oil energy services and several smaller industry sectors.

Net investment income edged up during 2017 on the strength of a greater invested asset base, while the yield environment continued to exhibit lower returns on both fixed maturity and high quality equity securities.

The ratio of claims and related settlement costs to earned premiums improved in the final quarter and full year of 2017 compared with 2016 periods. While current accident year claim ratios reflected moderate year-over-year declines, these were affected by moderately favorable (unfavorable) developments of prior years' reserves of 2.4 and (0.7) percentage points in 2017's fourth quarter and twelve month periods, respectively. 2017's unfavorable developments for the year were concentrated in the Company's largest insurance coverages of workers' compensation and general liability which were partially offset by favorable development trends in commercial automobile (trucking). For the respective 2016 periods, the claim and related settlement costs ratios include unfavorable development of 1.7 and 0.3 percentage points. Expense ratios for the 2017 periods reported upon were slightly above the range of a long-term operating objective of 23% to 25% due to the previously announced charges for estimated employee incentive awards.

Quarterly and even annual claim provisions and the trends they display may not be particularly meaningful in Old Republic's long-term liability insurance mix of business. Absent significant economic and insurance industry dislocations in the foreseeable future, it is currently anticipated that reported claim ratios could range within targeted averages in the high 60% to low 70% levels. The current mix of business should result in expense ratios within the aforementioned range.

Title Insurance Results – 2017 pretax operating income gained for the year as both revenues and claim costs extended the favorable trends of recent years.




Title Insurance Group


Quarters Ended December 31,


Years Ended December 31,


2017


2016


Change


2017


2016


Change

Net premiums and fees earned

$

616.6


$

619.4


-0.5%


$

2,287.2


$

2,206.6


3.6%

Net investment income


9.3



9.2


1.7



37.3



36.2


3.1

Other income


-



0.2


-89.3



0.5



1.2


-56.4

Operating revenues


626.0



628.9


-0.5



2,325.0



2,244.1


3.6

Claim costs


(13.7)



2.5


N/M



20.8



84.3


-75.3

Sales and general expenses


574.4



538.8


6.6



2,060.1



1,941.8


6.1

Interest and other costs


1.1



1.8


-38.0



6.9



7.6


-8.6

Total operating expenses


561.8



543.2


3.4



2,087.9



2,033.8


2.7

Pretax operating income (loss)

$

64.2


$

85.6


-25.0%


$

237.1


$

210.2


12.8%

















Claim ratio


-2.2%



0.4%





0.9%



3.8%



Expense ratio


93.1



86.9





90.0



87.9



Composite underwriting ratio


90.9%



87.3%





90.9%



91.7%




















The continuation of a generally positive mortgage rate environment and reasonably strong housing and commercial property markets were major factors in the year-over-year gain in premiums and fees for 2017. On the expense side of the ledger, claim costs were lower in the face of declining claims activity since the Great Recession years. Favorable developments of reserves established in prior years further reduced the claim ratio by 6.4 and 3.3 percentage points in 2017's fourth quarter and full year, respectively. For the related periods of 2016, the ratios were reduced by 3.8 and 1.1 percentage points, respectively. Except for the effect of aforementioned additions of employee incentive awards in the final quarter of 2017, the expense ratio for the periods reported upon remained generally aligned with earned premiums and fees levels.


RFIG Run-off Business Results – Overall pretax operating results for 2017 periods were most significantly impacted by additional claim and related expense provisions ($130.0 million) applicable to final settlements and probable dispositions of all known litigated and other claim costs incurred during the Great Recession years and their aftermath.




RFIG Run-off Business


Quarters Ended December 31,


Years Ended December 31,


2017


2016


Change


2017


2016


Change

A. Mortgage Insurance (MI)















Net premiums earned

$

23.7


$

34.3


-30.9%


$

109.8


$

154.1


-28.7%

Net investment income


5.0



5.3


-6.3



20.4



22.0


-7.4

Claim costs                                (a)


12.0



18.4


-34.6



63.3



52.5


20.4

Pretax operating income (loss)

$

13.1


$

17.1


-23.4%


$

48.9


$

105.0


-53.5%

















Claim ratio                                  (a)


50.8%



53.7%





57.6%



34.1%



Expense ratio


15.0



12.0





16.5



12.0



Composite underwriting ratio


65.8%



65.7%





74.1%



46.1%



















B. Consumer Credit Indemnity (CCI) (b)









Net premiums earned

$

0.4


$

4.6


-90.3%


$

13.0


$

15.8


-17.8%

Net investment income


0.2



0.3


-18.9



1.2



1.1


12.0

Benefits and claim costs             (a)


(1.4)



12.2


-111.4



134.5



50.0


168.7

Pretax operating income (loss)

$

1.6


$

(7.8)


121.1%


$

(122.4)


$

(35.2)


-247.1%

















Claim ratio                                  (a)


N/M



264.0%





N/M



315.9%



Expense ratio


N/M



11.9





N/M



13.9



Composite underwriting ratio


N/M



275.9%





N/M



329.8%



















C. Total MI and CCI run-off business:









Net premiums earned

$

24.2


$

38.9


-37.9%


$

122.9


$

170.0


-27.7%

Net investment income


5.3



5.6


-6.9



21.7



23.2


-6.4

Benefits and claim costs             (a)


10.6



30.6


-65.3



197.8



102.6


92.7

Pretax operating income (loss)

$

14.8


$

9.3


58.9%


$

(73.5)


$

69.8


-205.4%

















Claim ratio                                  (a)


44.0%



78.7%





160.9%



60.4%



Expense ratio


16.6



12.0





16.6



12.2



Composite underwriting ratio


60.6%



90.7%





177.5%



72.6%



















______

 (a) 

RFIG run-off pretax results for the year ended December 31, 2017 include additional claim and related expense provisions of $130.0. These costs, registered in the third quarter of the year, apply to the final settlements and probable dispositions of all known litigated and other claim costs incurred by the Company's run-off Financial Indemnity business during the Great Recession years and their aftermath. Of the total charge, $23.0 related to mortgage guaranty claim costs and $107.0 was attributable to additional claim provisions in the consumer credit indemnity run-off business.

(b)

In connection with the run-off mortgage guaranty ("MI") and consumer credit indemnity ("CCI") combination, $1.8 and $(121.1) of pretax operating gains (losses) for the fourth quarter and year 2017, and $(7.5) and $(33.8) for the same periods of 2016, respectively, were retained by certain general insurance companies pursuant to various quota share and stop loss reinsurance agreements. All of these amounts, however, have been reclassified such that 100% of the CCI run-off business is reported in the RFIG run-off segment.

Consistent with a run-off operating mode, further declines of earned premiums were posted by the combined MI and CCI lines. MI investment income was also lower as reduced premium volume and on-going claim payments effected downward pressures on the invested asset base.

The declining premium base led to a higher claim ratio for 2017 though current accident year reported claim costs, absent the MI charges referred to below, were relatively level in comparison to the related periods of 2016. Reductions in the provision for current year losses stemming from a continuing drop in newly reported delinquencies as well as improving cure rates resulted in favorable developments of previously established claim reserves. The developments led to reductions of the claim ratios by 32.6 and 38.3 percentage points in the fourth quarter and all of 2017, respectively. In the same respective periods of 2016, the claim ratio reductions amounted to 24.7 and 39.8 percentage points. As already noted however, MI claim costs for 2017 rose most significantly due to a third quarter additional claim provision of $23.0 which added 20.9 percentage points to the claim ratio for the year. MI operating costs and the related expense ratios were also impacted by costs stemming from the partial termination of a leased facility in early 2017.

2017 year-over-year operating performance comparisons for the CCI portion of the Run-off business were most significantly affected by the aforementioned claim provision of $107.0. Excluding this charge, CCI's pretax operating results would have reflected a minor improvement for the year as a whole.

Corporate and Other Operations The combination of a small life and accident insurance business and the net costs associated with operations of the parent holding company and its internal corporate services subsidiaries usually produce highly variable results. Earnings variations posted by these elements of Old Republic's business stem from volatility inherent to the small scale of the life and accident insurance line, changes in net investment income, and net interest expenses related to external and intra-system financing arrangements. Year-over-year comparisons were particularly affected by the previously announced $9.5 charge from a periodic review and resulting update of previously established estimates of future interest rates, mortality, and persistency applicable to largely inactive life insurance products in the fourth quarter 2017. The dynamic period-to-period interplay of these various operating elements is summarized in the following table:




Corporate and Other Operations


Quarters Ended

December 31,


Years Ended

December 31,


2017


2016


2017


2016

 

Net premiums earned

$

4.3


$

6.1


$

18.8


$

20.1

Net investment income


8.1



6.5



31.4



15.4

Other income


-



-



(0.1)



(0.1)

Operating revenues


12.4



12.7



50.1



35.4

Benefits and claim costs


12.3



4.9



25.8



17.7

Insurance expenses


1.3



1.2



8.2



7.8

Corporate, interest and other expenses - net


1.4



2.3



6.1



(3.2)

Total operating expenses


15.0



8.5



40.2



22.4

Pretax operating income (loss)

$

(2.5)


$

4.1


$

9.9


$

13.0


Consolidated Results – The above summarized operating results of Old Republic's segmented business are reflected in the following consolidation of accounts.




ORI Consolidated


Quarters Ended December 31,


Years Ended December 31,


2017


2016


Change


2017


2016


Change

Net premiums and fees earned

$

1,442.4


$

1,408.1


2.4%


$

5,539.7


$

5,333.2


3.9%

Net investment income


103.7



100.0


3.7



409.4



387.0


5.8

Other income


25.9



25.8


0.6



102.2



107.3


-4.7

Operating revenues


1,572.1



1,533.9


2.5



6,051.5



5,827.6


3.8

Benefits and claim costs


534.1



585.7


-8.8



2,478.8



2,347.9


5.6

Sales and general expenses


822.6



755.9


8.8



2,995.7



2,816.3


6.4

Interest and other costs


14.7



16.2


-9.2



63.0



50.2


25.5

Total operating expenses


1,371.5



1,357.9


1.0



5,537.7



5,214.5


6.2

Pretax operating income (loss)


200.6



176.0


14.0



513.8



613.1


-16.2

Income taxes (credits)


106.0



53.6


97.8



195.7



193.5


1.1

Net operating income (loss)


94.5



122.3


-22.7



318.0



419.6


-24.2

Realized investment gains (losses)


154.0



14.7


N/M



211.6



72.8


190.4

Income taxes (credits) on realized investment gains (losses)         (a)


(51.0)



5.1


N/M



(30.8)



25.5


-220.8

Net realized investment gains (losses)


205.1



9.5


N/M



242.4



47.3


N/M

Net income (loss)

$

299.6


$

131.9


127.0%


$

560.5


$

466.9


20.0%

Benefit and claim ratio


37.0%



41.6%





44.7%



44.0%



Expense ratio


55.0



51.6





52.0



50.6



Composite underwriting ratio


92.0%



93.2%





96.7%



94.6%



















Consolidated operating cash flow









$

452.8


$

637.3


-29.0%

______

(a)