Edgar Filing: OLD REPUBLIC INTERNATIONAL CORP

Document

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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FORM 11-K

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[ X ]	Annual Report Pursuant to Section 15(d) of the Securities Exchange Act of 1934
	For the Fiscal Year Ended December 31, 2017

Or

[ ]	Transition Report Pursuant to Section 15(d) of the Securities Exchange Act of
	1934

	For the transition period from _______________ to _______________

Commission File Number: 001-10607

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OLD REPUBLIC INTERNATIONAL CORPORATION

EMPLOYEES SAVINGS AND STOCK OWNERSHIP PLAN

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OLD REPUBLIC INTERNATIONAL CORPORATION

307 NORTH MICHIGAN AVENUE

CHICAGO, ILLINOIS 60601

Total Pages: 18

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Administration Committee has duly caused this Annual Report to be signed on behalf of the undersigned, thereunto duly authorized.



			OLD REPUBLIC INTERNATIONAL CORPORATION EMPLOYEES
			SAVINGS AND STOCK OWNERSHIP PLAN, Registrant

			By:	/s/ Karl W. Mueller
				Karl W. Mueller, Member of the Administration Committee

Date: June 28, 2018

Old Republic International Corporation

Employees Savings and Stock Ownership Plan

Report on Audits of Financial Statements

and Supplemental Schedule

For the Years Ended December 31, 2017 and 2016

OLD REPUBLIC INTERNATIONAL CORPORATION

EMPLOYEES SAVINGS AND STOCK OWNERSHIP PLAN

INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULE



	Pages
Report of Independent Registered Public Accounting Firm	1

Financial Statements:

Statements of Net Assets Available for Benefits as of December 31, 2017 and 2016	3

Statements of Changes in Net Assets Available for Benefits for the years ended December 31, 2017 and 2016	4

Notes to Financial Statements	5-12

Supplemental Schedule:

Schedule of Assets (Held at End of Year) at December 31, 2017	14

Note

Supplemental schedules required by the Employee Retirement Income Security Act of 1974, as amended that have not been included herein are not applicable.

Report of Independent Registered Public Accounting Firm

To the Participants and Plan Administrator of the

Old Republic International Corporation Employee Savings and Stock Ownership Plan

Opinion on the Financial Statements

We have audited the accompanying statements of net assets available for benefits of the Old Republic International Corporation Employee Savings and Stock Ownership Plan (the Plan) as of December 31, 2017 and 2016, and the related statements of changes in net assets available for benefits for the years then ended, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the net assets available for benefits of the Plan as of December 31, 2017 and 2016, and the changes in net assets available for benefits for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Plan’s management. Our responsibility is to express an opinion on the Plan’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Plan in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Supplemental Information

The supplemental information in the accompanying schedule of assets (held at end of year) as of December 31, 2017, has been subjected to audit procedures performed in conjunction with the audit of the Plan’s financial statements. The supplemental information is the responsibility of the Plan’s management. Our audit procedures included determining whether the supplemental information reconciles to the financial statements or the underlying accounting and other records, as applicable, and

performing procedures to test the completeness and accuracy of the information presented in the supplemental information. In forming our opinion on the supplemental information, we evaluated whether the supplemental information, including its form and content, is presented in conformity with the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. In our opinion, the supplemental information is fairly stated, in all material respects, in relation to the financial statements as a whole.

/s/ Mayer Hoffman McCann P.C.

We have served as the Plan's auditor since 2007.

Minneapolis, Minnesota

June 27, 2018



OLD REPUBLIC INTERNATIONAL CORPORATION
EMPLOYEES SAVINGS AND STOCK OWNERSHIP PLAN

STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS

December 31, 2017 and 2016

		2017
		Participant		Non-Participant
		Directed		Directed		Unallocated		Combined
		Account		Account		Account		Account

ASSETS:
Investments, at fair value:
	Old Republic International Corporation
	common shares	$	11,349,607	$	209,286,505	$	60,148,012	$	280,784,124
	Mutual funds		457,497,609		105,894		—		457,603,503
	Short-term investments		—		—		2,212,228		2,212,228
	Total investments		468,847,216		209,392,399		62,360,240		740,599,855

Receivables:
	Contributions from employers		—		—		7,206,790		7,206,790
	Funds in course of settlement		—		—		—		—
	Accrued interest and dividends		—		—		2,319		2,319
	Total receivables		—		—		7,209,109		7,209,109
	TOTAL ASSETS		468,847,216		209,392,399		69,569,349		747,808,964

LIABILITIES:
Notes payable			—		—		41,038,664		41,038,664
Unpaid anti-discrimination refunds			300,000		—		—		300,000
Amount due to plan sponsor			—		—		—		—
Unpaid administrative expenses			—		26,800		1,132		27,932
	TOTAL LIABILITIES		300,000		26,800		41,039,796		41,366,596

NET ASSETS AVAILABLE FOR BENEFITS		$	468,547,216	$	209,365,599	$	28,529,553	$	706,442,368



OLD REPUBLIC INTERNATIONAL CORPORATION
EMPLOYEES SAVINGS AND STOCK OWNERSHIP PLAN

STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS

December 31, 2017 and 2016
		2016
		Participant		Non-Participant
		Directed		Directed		Unallocated		Combined
		Account		Account		Account		Account

ASSETS:
Investments, at fair value:
	Old Republic International Corporation
	common shares	$	9,529,269	$	189,346,730	$	66,661,576	$	265,537,575
	Mutual funds		371,344,597		97,026		—		371,441,623
	Short-term investments		—		—		2,509,497		2,509,497
	Total investments		380,873,866		189,443,756		69,171,073		639,488,695

Receivables:
	Contributions from employers		—		—		6,557,854		6,557,854
	Funds in course of settlement		255,737		—		—		255,737
	Accrued interest and dividends		—		—		654		654
	Total receivables		255,737		—		6,558,508		6,814,245
	TOTAL ASSETS		381,129,603		189,443,756		75,729,581		646,302,940

LIABILITIES:
Notes payable			—		—		47,638,664		47,638,664
Unpaid anti-discrimination refunds			530,000		—		—		530,000
Amount due to plan sponsor			—		—		742,687		742,687
Unpaid administrative expenses			—		27,000		—		27,000
	TOTAL LIABILITIES		530,000		27,000		48,381,351		48,938,351

NET ASSETS AVAILABLE FOR BENEFITS		$	380,599,603	$	189,416,756	$	27,348,230	$	597,364,589


The accompanying notes are an integral part of these financial statements.
3



OLD REPUBLIC INTERNATIONAL CORPORATION
EMPLOYEES SAVINGS AND STOCK OWNERSHIP PLAN

STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS

For the Years Ended December 31, 2017 and 2016

		2017
		Participant		Non-Participant
		Directed		Directed			Unallocated			Combined
		Account		Account			Account			Account

Additions (Reductions):
	Employer contributions	$	—	$	—		$	7,206,790		$	7,206,790
	Common shares released to participants
	(695,220 shares at $19.00 per
	share and 625,650 shares at
	$18.63 per share, respectively)		—		13,209,180			—			13,209,180
	Employee contributions		47,685,785		—			—			47,685,785
	Interfund transfers		11,346,302		(9,909,439	)		(1,436,863	)		—
	Interest income		7,910		235			17,911			26,056
	Dividend income		21,745,894		7,372,805			2,402,279			31,520,978
	Net appreciation (depreciation) in
	fair value of investments		47,334,786		24,090,782			7,582,905			79,008,473
	Total additions (reductions)		128,120,677		34,763,563			15,773,022			178,657,262

Deductions:
	Termination and withdrawal benefits		39,927,100		14,803,797			—			54,730,897
	Common shares released to participants
	(695,220 shares at $19.00 per
	share and 625,650 shares at
	$18.63 per share, respectively)		—		—			13,209,180			13,209,180
	Interest expense		—		—			1,381,079			1,381,079
	Anti-discrimination refunds		222,498		—			—			222,498
	Administrative expenses		23,466		10,923			1,440			35,829
	Total deductions		40,173,064		14,814,720			14,591,699			69,579,483
	Net additions (deductions)		87,947,613		19,948,843			1,181,323			109,077,779

NET ASSETS AVAILABLE FOR BENEFITS:
	Beginning of year		380,599,603		189,416,756			27,348,230			597,364,589
	End of year	$	468,547,216	$	209,365,599		$	28,529,553		$	706,442,368



OLD REPUBLIC INTERNATIONAL CORPORATION
EMPLOYEES SAVINGS AND STOCK OWNERSHIP PLAN

STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS

For the Years Ended December 31, 2017 and 2016

		2016
		Participant		Non-Participant
		Directed		Directed			Unallocated			Combined
		Account		Account			Account			Account

Additions (Reductions):
	Employer contributions	$	—	$	—		$	6,557,854		$	6,557,854
	Common shares released to participants
	(695,220 shares at $19.00 per
	share and 625,650 shares at
	$18.63 per share, respectively)		—		11,655,860			—			11,655,860
	Employee contributions		42,328,541		—			—			42,328,541
	Interfund transfers		9,968,607		(9,968,607	)		—			—
	Interest income		3,622		(44	)		3,562			7,140
	Dividend income		11,638,592		7,485,559			2,865,996			21,990,147
	Net appreciation (depreciation) in
	fair value of investments		16,031,667		3,538,772			1,587,609			21,158,048
	Total additions (reductions)		79,971,029		12,711,540			11,015,021			103,697,590

Deductions:
	Termination and withdrawal benefits		28,484,996		13,151,143			—			41,636,139
	Common shares released to participants
	(695,220 shares at $19.00 per
	share and 625,650 shares at
	$18.63 per share, respectively)		—		—			11,655,860			11,655,860
	Interest expense		—		—			1,388,107			1,388,107
	Anti-discrimination refunds		540,376		—			—			540,376
	Administrative expenses		22,428		11,687			1,453			35,568
	Total deductions		29,047,800		13,162,830			13,045,420			55,256,050
	Net additions (deductions)		50,923,229		(451,290	)		(2,030,399	)		48,441,540

NET ASSETS AVAILABLE FOR BENEFITS:
	Beginning of year		329,676,374		189,868,046			29,378,629			548,923,049
	End of year	$	380,599,603	$	189,416,756		$	27,348,230		$	597,364,589

The accompanying notes are an integral part of these financial statements.

OLD REPUBLIC INTERNATIONAL CORPORATION

EMPLOYEES SAVINGS AND STOCK OWNERSHIP PLAN

NOTES TO FINANCIAL STATEMENTS

_________________

1. Description of Plan

A. Basis of Presentation

The accompanying financial statements of the Old Republic International Corporation Employees Savings and Stock Ownership Plan (the Plan) include plan assets for employees of Old Republic International Corporation and participating subsidiaries (the Corporation, the Plan Sponsor, the Company(ies) or the Employer(s)). These financial statements and accompanying notes together provide only general information about the Plan. The Plan Document must be referred to for a complete description of the Plan's provisions.

B. General

The Plan is a defined contribution plan, under the provisions of Section 401(k) of the Internal Revenue Code, covering a majority of employees of the Corporation and certain of its subsidiary companies and is subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended (ERISA). Employees become participants in the Plan on their employment date and as soon as they elect to make contributions to the Plan. Effective as of January 1, 2008, the Plan was amended and operates, in relevant part, as a leveraged employee stock ownership plan (ESOP), and is designed to comply with Section 4975(e)(7) and the regulations there under of the Internal Revenue Code of 1986, as amended (Code) and is subject to the applicable provisions of ERISA.

In 2008, the Plan purchased Corporation common shares (ESSOP shares) using the proceeds of loans from the Corporation and participating subsidiary companies (see Note 4). Unallocated ESSOP shares purchased with the Corporation loan proceeds are pledged as collateral on the Corporation loan. The participating subsidiary company loans are guaranteed by the Corporation. ESSOP shares are held in a trust established under the Plan. The borrowings and interest costs are to be repaid over a ten year period by fully deductible Corporation contributions to the Plan, dividends from unallocated Corporation stock, and any earnings the net funds may earn.

The Corporation borrowed funds from a third-party lending institution to fund a portion of the loan proceeds. The Corporation borrowings are collateralized by the associated unallocated ESSOP shares of stock. The lender has no rights against shares once they are allocated under the Plan. Accordingly, the financial statements of the Plan as herein included, present separately the assets and liabilities and changes therein pertaining to the stock not yet allocated to participants under the column entitled “Unallocated Account.” Shares allocated are included in the financial statements herein under the columns entitled “Non-participant Directed Account” and are entitled to diversification as afforded within the Plan document.

In 2015, the Plan purchased additional Corporation common shares (ESSOP shares) using the proceeds from an additional loan from the Corporation (see Note 4). ESSOP Shares are held in a trust established under the Plan. The borrowing and interest costs are to be repaid over an eight year period by fully deductible Corporation contributions to the Plan, dividends from unallocated Corporation stock, and any earnings the net funds may earn.

On an annual basis, the Plan makes a calculation of the number of shares to be allocated (released) to the account of eligible participants. The calculation of allocated shares is made in accordance with applicable regulations under the Code and the Plan document. Shares allocated to participants will vest in accordance with the stated vesting provisions in the Plan document (see Note 1E).

C. Contributions

Deferral elected contributions from employees are made on a pretax basis up to a limit of $18,000 in 2017. Participants may elect to make additional contributions, on a post-tax basis, up to a maximum of 100% of eligible compensation, as defined in the Plan, not to exceed the limits set by Section 415 of the Code. All contributions are recorded in the period in which the Companies make payroll deductions from Plan participants. Any employee who does not contribute to the Plan does not receive a Company matching contribution. Only employee contributions up to 6% are matched. However, the maximum amount of contribution which can be matched per employee cannot exceed $9,000 (6% of $150,000) per Plan year. Contributions are also subject to other Code limitations (including the limits imposed by code Section 415).

OLD REPUBLIC INTERNATIONAL CORPORATION

EMPLOYEES SAVINGS AND STOCK OWNERSHIP PLAN

NOTES TO FINANCIAL STATEMENTS

_________________

Employees may also roll over into the Plan qualified distributions from their previous employer(s)’ qualified plan(s). In addition, employees who are 50 years of age at any time during the Plan year may make additional, pretax, catch-up contributions up to $6,000 in 2017. Rollovers and catch-up contributions are not eligible for company matching.

Participants direct the investment of their contributions into mutual funds offered by the Plan. In addition, participants may also direct their contributions to buy Old Republic common stock. Participants may change the investment allocation of their contributions and earnings up to 12 times per year.

A Plan participant is eligible to receive an allocation of ESSOP shares if the following criteria are met:


•	the participant completes 1,000 or more hours of service during the year and


•	the participant is employed by one of the Companies on December 31 of that year, died or became fully disabled during the year, or retired during the year after attaining age 65.

The Company contributions, when aggregated with the Plan’s dividends and other earnings on the unallocated ESSOP shares, are used to fund the Plan’s debt service. The debt service funding triggers the release of shares to be allocated to participants’ accounts, in accordance with regulations under ERISA, the Code and the Plan Document.

The Company matching contribution is based on the following formula:



	If the percentage increase in the Corporation's average
	operating earnings per share for the most recent five year period is
	Less Than	6.00%	9.01%	15.01%	Over
	6%	to 9%	to 15%	to 20%	20%
Percentage of Recognized	The Resulting Employer Matching Contribution
Compensation Contributed	on the First 6% of Employee Savings Will Be:
1.00%	30%	40%	65%	100%	140%
1.01 to 2.00%	28%	38%	63%	98%	138%
2.01 to 3.00%	26%	36%	61%	96%	136%
3.01 to 4.00%	24%	34%	59%	94%	134%
4.01 to 5.00%	22%	32%	57%	92%	132%
5.01 to 6.00%	20%	30%	55%	90%	130%
6.01 to 15.00%	None	None	None	None	None

The percentage increase in the Corporation's average operating earnings per share is obtained by comparing the average diluted operating earnings per share for the Corporation for the five years ending with the calculation year, to the same average for the five years ending the year prior to the calculation year. Operating earnings per share are equal to net income per share exclusive of realized capital gains or losses and extraordinary items and income taxes applicable thereto.

Additional amounts from consolidated annual net profits after taxes or accumulated earnings as the Board of Directors of the Companies may determine from time to time may be added to the contributions resulting from the above formula. The amounts of the Companies’ contributions are subject to the following limitations:


•	Prior to December 31, 2008, no contribution could be made if the Corporation’s consolidated annual net profit before extraordinary items and taxes was less than $2,500,000. Effective as of December 31, 2008, the Plan was amended to allow the Corporation’s Board of Directors to waive such minimum profit requirement.


•	No contribution shall be made by any Employer for any fiscal year which exceeds the maximum amount currently deductible by that Employer under section 404 of the Code.


•	No contribution shall be made by any Employer for any fiscal year which would cause its total contribution to exceed the amount of its annual net profit before taxes and its accumulated earnings.

For plan years 2017 and 2016, the Corporation’s Board of Directors declared contributions of $7,206,790 and $6,557,854 respectively.

OLD REPUBLIC INTERNATIONAL CORPORATION

EMPLOYEES SAVINGS AND STOCK OWNERSHIP PLAN

NOTES TO FINANCIAL STATEMENTS

_________________

D. Employee Account

When a Plan participant makes employee contributions, the contributions are allocated to the mutual fund(s) or Old Republic common stock fund as designated by the participant. These funds constitute the participant’s Employee Account which, for financial statement purposes, is included under the column entitled “Participant Directed Account.” Earnings or losses inure to each Plan participant's Employee Account on a daily basis, based upon the performance of the mutual fund(s) and Old Republic common stock fund that the Plan participant selected. Participants are fully vested in their contribution funds and earnings/losses thereon. The benefit to which a participant is entitled is the benefit that can be provided from the participant’s vested account.

For contributions made to the Plan prior to 2005, participants may make in-service withdrawals from their Employee Account no more than twice during a plan year. The minimum amount of such in-service withdrawal shall be the lower of $500 or the balance of the participant’s Employee Account as of the last day of the prior plan year. For contributions made to the Plan after 2004, participants may make in-service withdrawals, including contributions made during the year of the in-service withdrawal, only if they meet the hardship provisions outlined in the Internal Revenue Service Regulations. Effective January 1, 2014, participants may only withdraw Employee after-tax contributions that were not made during the current year and may not withdraw after-tax contributions allocated on or after January 1, 2014, nor any earnings thereon.

E. Company Account

Each year, the released shares triggered by the debt service funding and the earnings/losses thereon are allocated to the participant’s Company Account which, for financial statement purposes, is included under the column entitled “Non-Participant Directed Account.” If a Plan participant terminates service with the Companies, the amount that he/she receives from his/her Company Account depends upon his/her vested interest in such account. A Plan participant vests in his/her Company Account based on his/her "Years of Service," over a six year period, with 20% vesting after two years of service plus an additional 20% per additional vesting year.

A Plan participant earns a Year of Service for each calendar year during which he/she completes 1,000 or more hours of service for the Companies. However, a Plan participant will become 100% vested in his/her Company Account prior to six years of service if:


•	the Plan participant has reached age 65, or


•	termination is caused by death, or


•	termination is caused by total and permanent disability which renders the employee incapable of performing satisfactory service for the Companies.

Upon meeting any of the above, the participant may elect to receive his/her benefits in the form of cash or Old Republic International Corporation common shares (Company Stock). If a participant elects a cash distribution of both his/her Company Account and Employee Account, he/she may elect to be paid:


•	in one lump sum, or


•	in a direct rollover to an eligible retirement plan specified by the participant, or


•	in substantially equal annual or more frequent installments paid over a reasonable period of time not to exceed the life expectancy of the participant or the joint life expectancy of the participant and his/her spouse or designated beneficiary.

The amount a Plan participant receives from his/her Company Account is also affected by forfeitures and earnings/losses. If a Plan participant terminates service prior to full vesting, the non-vested portion of his/her Company Account is forfeited. Forfeited matching amounts are re-allocated to remaining participants who made employee contributions, completed 1,000 or more hours of service for the Company during the year, and are employed by the Company on December 31 or terminated service due to retirement on or after age 65, death, or total and permanent disability. Forfeited amounts from other employer discretionary contributions not included in matching contributions are reallocated to all remaining eligible Plan participants who are employed by the Companies on the last day of the year. Forfeitures are allocated based upon the ratio of the Plan participant's eligible compensation to the eligible compensation of all eligible Plan participants (eligible compensation is limited to a maximum of $150,000). Forfeitures allocated relative to the 2017 and 2016 plan years were $293,066 and $427,450, respectively.

OLD REPUBLIC INTERNATIONAL CORPORATION

EMPLOYEES SAVINGS AND STOCK OWNERSHIP PLAN

NOTES TO FINANCIAL STATEMENTS

_________________

Each participant’s account is credited with an allocation of ESSOP shares released by the Trustee from the unallocated account and forfeitures of terminated participants’ non-vested accounts. Only those participants, who are eligible participants as described above, will receive an allocation in accordance with the Plan document.

Participants are able to divest Company Stock acquired with employer matching and profit sharing contributions after completing three years of service. The investment options available for diversification are the same mutual funds available for investment of Employee contributions. Previously diversified funds may be re-diversified into Old Republic common stock. For financial statement purposes, diversified funds are transferred from the Non-Participant Directed Account to the Participant Directed Account, but are still considered part of the Company Account.

F. Unallocated Account

The unallocated account represents all assets and liabilities of the Plan relating to the leveraging of the Plan and not yet allocated to participants.

G. Common Shares Released to Participants

The Common Shares Released to Participants represents the fair value of the ESSOP shares allocated to participants’ accounts during the year. It represents the number of shares calculated in accordance with applicable regulations under the Code. It takes into account the debt service provided by the Company contributions, and dividends received on the unallocated ESSOP shares during the year. The release fraction applied to the number of unreleased shares is the principal paid that coincides with the timing of the Company contributions, and the interest paid during the plan year (numerator) divided by the numerator plus an estimate of the remaining future principal and interest (assuming most recent interest rate at December 31) to be paid.

During 2017 and 2016, 695,220 and 625,650 ESSOP shares, respectively, were released and 2,813,284 and 3,508,504 ESSOP shares respectively, remained unallocated as of December 31, 2017 and 2016. It should be noted that there is no connection as to the number of shares being allocated and the market value of the Corporation’s common shares at any given time. Hence, the market value of the stock on the actual day of allocation (release) to participants’ accounts may vary from the fair value at December 31, 2017 and 2016, as presented in the financial statements.

H. Voting Rights

Each participant is entitled to exercise voting rights attributable to the shares allocated to his or her account and is notified by the Trustee prior to the time that such voting rights are to be exercised. The Trustee is not permitted to vote any allocated share for which instructions have not been given by a participant. The Trustee is required, however, to vote any unallocated shares on behalf of the collective best interest of Plan participants and beneficiaries.

2. Summary of Accounting Policies

A. Basis of Accounting

The Plan’s financial statements are prepared on an accrual basis of accounting in accordance with accounting principles generally accepted in the United States (“GAAP”). Necessary reclassifications are made in prior periods’ financial statements whenever appropriate to conform to the most current presentation.

OLD REPUBLIC INTERNATIONAL CORPORATION

EMPLOYEES SAVINGS AND STOCK OWNERSHIP PLAN

NOTES TO FINANCIAL STATEMENTS

_________________

B. Use of Estimates

The preparation of financial statements in conformity with GAAP requires the Plan’s administrator to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of additions and deductions during the reporting period. Actual results can differ from those estimates.

C. Risks and Uncertainties

Besides the investment of matching contributions into common stock of the Corporation, the Plan provides participants with various investment alternatives for their savings contributions and or diversifications. These investment alternatives are made up of various mutual funds which can be equity based, fixed income based or a combination thereof. In addition, participants may also direct their contributions to buy Old Republic common stock.

All of the above investment alternatives are exposed to various market risks including the level of interest rates, economic conditions and individual credit profiles. Due to these risks and the uncertainty related to changes in the market value of underlying investment securities, it is possible that participants’ account balances and the amounts reported in the statements of net assets available for benefits and the statements of changes in net assets available for benefits could be materially affected.

D. Investment Valuation and Income Recognition

The Plan’s investments are reported at fair value. Shares of mutual funds are valued at the net asset value of shares held by the Plan at the valuation date. Old Republic International Corporation common shares are traded on a national securities exchange and are valued at the last reported sales price on the last business day of the year. Short‑term investments are valued at cost plus accrued interest which approximates fair value.

The statements of changes in net assets available for benefits reflect the net appreciation (depreciation) in fair value of the Plan’s investments, which consists of realized gains or losses and the unrealized appreciation (depreciation) on those investments. Interest income is recorded as earned and dividend income is recorded as earned on the ex-dividend date. Purchases and sales are recorded on a trade-date basis.

E. Termination and Withdrawal Benefit Payments

Termination and withdrawal benefit payments are recorded upon distribution payment.

F. Plan Expenses

Plan expenses including fees for trustee, legal, accounting, auditing, investment, custodial and other services are paid by the Plan and included in administrative expenses. Certain other expenses are paid or provided by the Plan Sponsor. Investment management fees paid by the Plan are included in the net fund investment appreciation (depreciation) for the year.

H. Subsequent Events

Subsequent events have been evaluated through the date the financial statements were issued.

On May 2, 2018, the Company reported that the Plan will acquire up to 2,600,000 Old Republic common shares in open-market purchases, as market conditions may warrant. In May 2018, the Plan entered into term loan agreements with participating subsidiary companies for aggregate borrowings of $50,000,000 to fund the aforementioned acquisitions of common shares. The loans bear a 5% interest rate. Principal amounts on the loans are due on March 31, 2019, subject to annual loan renewal under the ESSOP loan agreements dated May 24, 2018. As of June 27, 2018, the Plan has purchased 1,799,000 shares for $37,440,847.

OLD REPUBLIC INTERNATIONAL CORPORATION

EMPLOYEES SAVINGS AND STOCK OWNERSHIP PLAN

NOTES TO FINANCIAL STATEMENTS

_________________


3.	Investments

Fair Value Measurements

The Plan investments are reported at fair value in the accompanying statements of net assets available for plan benefits. Fair value is defined as the estimated price that is likely to be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants (an exit price) at the measurement date. A fair value hierarchy is established that prioritizes the sources (“inputs”) used to measure fair value into three broad levels: inputs based on quoted market prices in active markets (Level 1); observable inputs based on corroboration with available market data (Level 2); and unobservable inputs based on uncorroborated market data or a reporting entity’s own assumptions (Level 3).

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

The valuation methodologies used for assets measured at fair value are discussed further in Note 2(D). There have been no changes in the methodologies used at December 31, 2017 from prior years.

The following tables set forth by level, within the fair value hierarchy, the Plan’s assets at fair value as of December 31, 2017 and 2016:



			December 31, 2017
			Fair Value Measurements Using:
	Fair Value		Level 1		Level 2		Level 3
Company common stock	$	280,784,124	$	280,784,124	$	0	$	0
Mutual funds		457,603,503		457,603,503		0		0
Other short-term investments		2,212,228		2,212,228		0		0
Total investments at fair value	$	740,599,855	$	740,599,855	$	0	$	0

			December 31, 2016
			Fair Value Measurements Using:
	Fair Value		Level 1		Level 2		Level 3
Company common stock	$	265,537,575	$	265,537,575	$	0	$	0
Mutual funds		371,441,623		371,441,623		0		0
Other short-term investments		2,509,497		2,509,497		0		0
Total investments at fair value	$	639,488,695	$	639,488,695	$	0	$	0

4. Notes Payable

In December 2008, the Plan entered into term loan agreements with the Corporation and participating subsidiary companies for aggregate borrowings of $50,000,000 ($30,000,000 from the Corporation and $20,000,000 from the participating subsidiary companies). The proceeds of the loans were used to purchase 5,488,475 shares of the Corporation’s common stock. Unallocated shares associated with the Corporation’s loan are collateral on the loans. The Corporation pledged its rights associated with the collateral shares as collateral on the Corporation’s loan with a financial institution. The participating subsidiary company loans are guaranteed by the Corporation. The loans all bear interest at a variable interest rate indexed to the London Interbank Offered Rate (LIBOR) plus 350 basis points. The interest rate was 4.85% and 4.11% at December 31, 2017 and 2016, respectively.

Interest is payable quarterly with any remaining accrued interest due and payable on maturity of the loan. Principal on the Corporation’s loan is payable in accordance with the following maturity schedule through March 2018 when any remaining principal and accrued interest are due and payable. Principal amounts on the participating subsidiary company loans are due on March 31, 2018. In 2018, the Plan repaid $2,800,000 principal to the subsidiary companies.

OLD REPUBLIC INTERNATIONAL CORPORATION

EMPLOYEES SAVINGS AND STOCK OWNERSHIP PLAN

NOTES TO FINANCIAL STATEMENTS

_________________

In December 2015, the Plan entered into an additional term loan agreement with the Corporation for aggregate borrowings of $34,038,664. The proceeds of the loan were used to purchase 2,200,000 shares of the Corporation’s common stock. The loan bears interest at the less of (a) 4.0% per year, or (b) the variable interest rate indexed to the one month London Interbank Offered Rate (LIBOR) plus 175 basis points calculated monthly. The interest rate was 3.10% and 2.36% at December 31, 2017 and 2016, respectively.

Interest on the additional term loan is payable quarterly with any remaining accrued interest due and payable on maturity of the loan. Principal on the loan is payable in accordance with the following maturity schedule. Principal repayments are due beginning in 2019 and go through March 2023 when any remaining principal and accrued interest are due and payable.

At December 31, 2017, loans due to the Corporation and participating subsidiary companies aggregated $41,038,664.

Maturities of the Plan’s ESSOP loans are as follows:



	Total		Corporation		Participating Subsidiary Companies

2018	$	7,000,000	$	4,200,000	$	2,800,000
2019		6,800,000		6,800,000		0
2020		6,800,000		6,800,000		0
2021		6,800,000		6,800,000		0
2022		6,800,000		6,800,000		0
2023		6,838,664		6,838,664		0
Total	$	41,038,664	$	38,238,664	$	2,800,000

The fair value of the Plan’s notes payable are equal to their carrying value. The estimated fair value is based on an internally generated interest yield market matrix table, which incorporates maturity, coupon rate, credit quality, structure and current market conditions. All notes payable are classified within Level 3 of the fair value hierarchy as described in Note 3.

5. Related Parties and Parties in Interest

Old Republic International Corporation and participating subsidiaries are parties in interest. The Plan’s Non-Participant Directed Account (Company Account) and Unallocated Account are made up of the Corporation’s common stock as noted in Note 3. Also, office personnel, space and equipment are furnished by the Companies at no charge to the Plan.

Fidelity Investments Institutional Services Company, Inc. (Fidelity Investments), a subsidiary of FMR Corporation, is the Plan’s custodian, record keeper and provider of educational information to Plan participants. Certain mutual funds are managed by subsidiaries of FMR Corporation, which makes FMR Corporation a party in interest. Fees paid by the Plan to Fidelity Investments for custodianship, transaction and maintenance were $8,089 and $7,865 during 2017 and 2016, respectively.

6. Termination Priorities

Although it has no plans to do so, the Corporation reserves the right, either with or without formal action, to terminate the Plan. Each Employer reserves the right to permanently discontinue its contributions to the Plan. In the event that an Employer permanently discontinues its contributions to the Plan, or the Corporation terminates the Plan, or the Plan is partially terminated under operation of law, the accounts of the affected participants shall be fully vested and non‑forfeitable. Upon termination of the Plan, the Plan shall direct the trustee to pay all liabilities and expenses of the Trust Fund and sell shares of financed ESSOP shares held in the loan suspense account to the extent it determines such sale to be necessary in order to repay the loans.

OLD REPUBLIC INTERNATIONAL CORPORATION

EMPLOYEES SAVINGS AND STOCK OWNERSHIP PLAN

NOTES TO FINANCIAL STATEMENTS

_________________

7. Tax Status

The Internal Revenue Service (IRS) issued a favorable determination letter, dated November 17, 2017, stating that the Plan is designed in accordance with applicable sections of the Internal Revenue Code (IRC). The Plan's Sponsor believes that the Plan is designed and is currently being operated in compliance with the applicable requirements of the IRC, therefore, no provision for income taxes has been included in the Plan’s financial statements.

Plan management has evaluated the effects of accounting guidance related to uncertain income tax positions and concluded that the Plan had no significant financial statement exposure to uncertain income tax positions at December 31, 2017 and 2016. The Plan is not currently under audit by any tax jurisdiction.

8. Anti-Discrimination Refunds

Due to limits imposed by Internal Revenue Code Section 415 and ERISA, tests are performed annually to determine that the Plan has not discriminated between highly compensated employees and non-highly compensated employees. In most years, initial tests indicate that there is an excess differential between contributions by highly compensated employees and non-highly compensated employees. To bring the Plan into compliance, a determination is made as to how many contributions need to be returned to highly compensated employees so the Plan can meet the “Actual Contribution Percentage Test for Non-excludable Employees.” This amount represents the anti-discrimination refunds payable at any given year-end. Anti-discrimination refunds payable to participants were $300,000 and $530,000 at December 31, 2017 and 2016, respectively.

SUPPLEMENTAL SCHEDULE

OLD REPUBLIC INTERNATIONAL CORPORATION

EMPLOYEES SAVINGS AND STOCK OWNERSHIP PLAN

FORM 5500-ANNUAL RETURN/REPORT OF EMPLOYEE BENEFIT PLAN

SCHEDULE H, LINE 4i-SCHEDULE OF ASSETS (HELD AT END OF YEAR)

DECEMBER 31, 2017

EIN: 36-2678171

PLAN NUMBER-002

(c)

DESCRIPTION OF INVESTMENT INCLUDING MATURITY DATE, RATE

OF INTEREST, COLLATERAL, SHARES, PAR OR MATURITY VALUE

(b)

RATE OF

SHARES, PAR,

(e)

IDENTITY OF ISSUE, BORROWER,

MATURITY

INTEREST

OR MATURITY

(d)

CURRENT

(a)

LESSOR, OR SIMILAR PARTY

DATE

DIVIDENDS

COLLATERAL

VALUE

COST

VALUE

MUTUAL FUNDS:

BALANCED FUNDS:

FIDELITY FREEDOM INCOME K

N/A

VARIABLE

N/A

251,304

2,955,336

FIDELITY FREEDOM 2005 K

N/A

VARIABLE

N/A

139,187

1,745,411

FIDELITY FREEDOM 2010 K

N/A

VARIABLE

N/A

241,094

3,867,140

FIDELITY FREEDOM 2015 K

N/A

VARIABLE

N/A

1,060,047

14,162,231

FIDELITY FREEDOM 2020 K

N/A

VARIABLE

N/A

2,212,583

36,618,251

FIDELITY FREEDOM 2025 K

N/A

VARIABLE

N/A

2,305,534

33,153,586

FIDELITY FREEDOM 2030 K

N/A

VARIABLE

N/A

1,269,003

22,880,124

FIDELITY FREEDOM 2035 K

N/A

VARIABLE

N/A

1,205,405

18,334,203

FIDELITY FREEDOM 2040 K

N/A

VARIABLE

N/A

1,059,904

11,330,372

FIDELITY FREEDOM 2045 K

N/A

VARIABLE

N/A

875,508

10,602,403

FIDELITY FREEDOM 2050 K

N/A

VARIABLE

N/A

353,318

4,299,879

FIDELITY FREEDOM 2055 K

N/A

VARIABLE

N/A

142,611

1,956,622

FIDELITY FREEDOM 2060 K

N/A

VARIABLE

N/A

1,863

22,767

VANGUARD WELLINGTON FUND

N/A

VARIABLE

N/A

103,759

7,530,796

EQUITY FUNDS:

FIDELITY VALUE K

N/A

VARIABLE

N/A

181,020

21,943,250

FIDELITY MID-CAP STOCK K

N/A

VARIABLE

N/A

764,454

29,225,088

FIDELITY REAL ESTATE INCOME FUND

N/A

VARIABLE

N/A

35,745

428,578

FIDELITY SELECT ENERGY PORTFOLIO

N/A

VARIABLE

N/A

20,408

912,055

FRANKLIN CONVERTIBLE SECURITIES FUND

N/A

VARIABLE

N/A

12,495

243,406

T. ROWE PRICE VALUE FUND

N/A

VARIABLE

N/A

578,874

21,603,576

VANGUARD EXPLORER ADM

N/A

VARIABLE

N/A

97,517

8,621,477

VANGUARD HEALTH CARE FUND

N/A

VARIABLE

N/A

55,731

4,830,796

FIXED INCOME FUNDS:

FIDELITY INTERMEDIATE-TERM BOND FUND

N/A

VARIABLE

N/A

1,073,119

11,589,687

FIDELITY CAPITAL & INCOME FUND

N/A

VARIABLE

N/A

1,284,105

13,226,279

FIDELITY CASH RESERVES

N/A

VARIABLE

N/A

23,614,429

FIDELITY GNMA

N/A

VARIABLE

N/A

64,642

735,628

FIDELITY NEW MARKETS INCOME FUND

N/A

VARIABLE

N/A

54,543

884,691

VANGUARD LONG-TERM INVESTMENT-GRADE ADM

N/A

VARIABLE

N/A

240,762

2,564,113

GROWTH FUND:

T. ROWE PRICE GROWTH STOCK FUND

N/A

VARIABLE

N/A

375,221

23,507,582

VANGUARD GROWTH INDEX FUND

N/A

VARIABLE

N/A

49,724

3,597,517

VANGUARD INTERNATIONAL GROWTH FUND

N/A

VARIABLE

N/A

230,632

22,043,846

INDEX FUNDS:

FIDELITY 500 INDEX INSTITUTIONAL

N/A

VARIABLE

N/A

390,636

36,504,906

VANGUARD DIVIDEND APPRECIATION INV

N/A

VARIABLE

N/A

731,633

29,843,299

VANGUARD EXTENDED MARKET INDEX INS

N/A

VARIABLE

N/A

83,491

7,075,884

VANGUARD MID-CAP GROWTH INDEX ADM

N/A

VARIABLE

N/A

11,832

2,266,462

VANGUARD REIT INDEX ADM

N/A

VARIABLE

N/A

13,402

1,575,393

VANGUARD SHORT-TERM BOND INDEX IS

N/A

VARIABLE

N/A

935,817

9,713,782

VANGUARD TOTAL BOND MARKET INDEX INSTITUTIONAL

N/A

VARIABLE

N/A

306,521

3,295,099

VANGUARD TOTAL INTERNATIONAL BOND INDEX AD

N/A

VARIABLE

N/A

26,719

579,802

VANGUARD TOTAL INTERNATIONAL STOCK INDEX IS

N/A

VARIABLE

N/A

38,585

4,708,523

VANGUARD VALUE INDEX FUND

N/A

VARIABLE

N/A

72,669

3,009,236

TOTAL

457,603,503

EMPLOYER SECURITIES:

OLD REPUBLIC INTERNATIONAL

CORPORATION COMMON STOCK:

PARTICIPANT DIRECTED

N/A

530,852

7,999,145

11,349,607

NON-PARTICIPANT DIRECTED

N/A

9,788,892

129,224,098

209,286,505

UNALLOCATED

N/A

2,813,284

39,625,681

60,148,012

TOTAL

13,133,028

176,848,924

280,784,124

SHORT-TERM INVESTMENTS

N/A

2,212,228

TOTAL INVESTMENTS HELD

740,599,855

Note:

Parties in Interest.

Participant directed funds.

Includes Non-Participant directed funds (105,894 shares with a cost and current value of $105,894).