OLD REPUBLIC INTERNATIONAL CORP (ORI) FY 2022 MD&A

Item 7 - Management Analysis of Financial Position and Results of Operations

($ in Millions, Except Share Data)

OVERVIEW

This management analysis of financial position and results of operations pertains to the consolidated accounts of Old Republic International Corporation ("Old Republic", "ORI" or "the Company"). The Company conducts its operations through a number of regulated insurance company subsidiaries organized into three major segments: General Insurance (property and liability insurance), Title Insurance and Republic Financial Indemnity Group (RFIG) Run-off. A small life and accident insurance business, accounting for 0.1% of consolidated operating revenues for the year ended December 31, 2022 and 0.5% of consolidated assets as of that date, is included within the Corporate & Other caption of this report.

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

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

The insurance business is distinguished from most others in that the prices (premiums) charged for most products are set without knowing what the ultimate loss costs will be. The Company also cannot know exactly when claims will be paid, which may be many years after a policy was issued or expired. This casts Old Republic as a risk-taking enterprise managed for the long run. Old Republic therefore conducts the business with a primary focus on achieving favorable underwriting results over cycles, and on maintaining a sound financial condition to support our subsidiaries' long-term obligations to policyholders and their beneficiaries. To achieve these objectives, adherence to insurance risk management principles is stressed, and asset diversification and quality are emphasized. In addition, management engages in an ongoing assessment of operating risks, such as cybersecurity risks, that could adversely affect the Company's business and reputation.

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

In light of the above factors, the Company is managed for the long run and with little regard for quarterly or even annual reporting periods. These time frames are too short. Management believes results are best evaluated by looking at underwriting and overall operating performance trends over 10-year intervals. These likely include one or two economic and/or underwriting cycles. This provides enough time for these cycles to run its course, for premium rate changes and subsequent underwriting results to be reflected in financial statements, and for reserved loss costs to be quantified with greater accuracy.

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

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EXECUTIVE SUMMARY

Old Republic International Corporation reported the following consolidated results:

The Company reported pretax income, excluding investment gains (losses), of $1,058.6 for the full year 2022 compared to $1,164.0 for 2021. Solid underwriting results drove a consolidated combined ratio of 91.0% for the full year 2022 compared to 89.9% and 93.3% in 2021 and 2020, respectively.

For 2022, consolidated net premiums and fees earned declined 4.1%, reflecting a decrease in Title Insurance of 13.0%, offset by growth in General Insurance of 7.1%. Conversely, consolidated net premiums and fees for 2021 represented growth of 18.8% compared to 2020, with mid-single digit increases in General Insurance and significant growth in Title insurance attributable to a low interest rate environment and a robust real estate market. Net investment income increased in 2022 following relatively flat levels maintained in 2021. The increase for 2022 reflects growth in the invested asset base and higher investment yields earned.

During 2022, the Company returned total capital of $862.0, including $580.7 in dividends and $281.2 of share repurchases (12.6 million shares at an average price of $22.23 per share), leaving approximately $169.0 remaining under the current repurchase authorization as of December 31, 2022. Following the close of the year and through February 23, 2023, the Company repurchased 1.3 million additional shares for $35.6 (average price of $25.85), leaving $133.1 remaining under the current repurchase authorization.

Book value per share was $21.05 as of December 31, 2022, reflecting declining fair market values of the investment portfolio during the year, partially offset by strong operating earnings. With the addition of dividends declared during the year, this was an increase of 0.9% over year-end 2021.

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Old Republic's business is managed for the long run. In this context management's key objectives are to achieve highly profitable operating results over the long term, and to ensure balance sheet strength for the primary needs of the insurance subsidiaries' underwriting and related services business. In this view, the evaluation of periodic and long-term results excludes consideration of all investment gains (losses). Under Generally Accepted Accounting Principles (GAAP), however, net income, inclusive of investment gains (losses), is the measure of total profitability.

In management's opinion, the focus on income excluding investment gains (losses), also described herein as segment pretax operating income, provides a better way to analyze, evaluate, and establish accountability for the results of the insurance operations. The inclusion of realized investment gains (losses) in net income can mask trends in operating results, because such realizations are often highly discretionary. Similarly, the inclusion of unrealized investment gains (losses) in equity securities can further distort such operating results with significant period-to-period fluctuations.

We believe the information presented in the following table highlights the most meaningful indicators of ORI's segmented and consolidated financial performance. The information underscores the performance of our underwriting operations, as well as our sound investment of the capital and underwriting cash flows from these operations.

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(a) Includes consolidation/elimination entries.

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General Insurance Segment Operating Results

General Insurance net premiums earned increased 7.1% for 2022 driven by growth in most lines of coverage, in particular commercial automobile. Net premiums earned for 2021 grew 4.8%, with rising premiums in commercial automobile, financial indemnity, and property lines of coverage. Premium rate increases for most lines of coverage, high renewal retention ratios, and new business production all contributed. Net investment income increased in 2022, reflecting higher investment yields earned and to a lesser extent, growth in the invested asset base. For 2021, net investment income decreased reflecting lower investment yields partially offset by growth in the invested asset base.

The reported loss ratio for General Insurance improved in 2022 and 2021, inclusive of favorable reserve development from prior periods. Favorable development for both periods came predominantly from the commercial automobile and workers' compensation lines of coverage. The current period loss costs reflect several years of premium rate increases, underwriting actions, and a shift in the line of coverage mix.

The expense ratios generally reflect the shift in line of coverage mix. Investments in new products and geographies in recent years have diversified the General Insurance business, resulting in shifts in the lines of coverage mix toward lines with higher expense ratios and lower current period loss ratios.

Together, these factors produced highly profitable combined ratios and greater pretax operating income for the periods reported. For General Insurance, we target combined ratios between 90% and 95% over a full underwriting cycle, recognizing that quarterly and annual ratios and trends may deviate from this range, particularly given the long claim payment patterns associated with the business.

The following table shows recent annual loss ratios and the effects of loss development trends:

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Title Insurance Segment Operating Results

Title Insurance net premiums and fees earned declined by 13.0% for 2022. Both directly produced and agency produced revenues declined, and we remain of the view that such revenues will continue to face headwinds into 2023. The main driver of these trends is increasing mortgage interest rates which continue to drive a steep reduction in refinance activity and to a lesser extent, purchase activity. An uptick in commercial transaction activity resulted in commercial premium growth during the full year. Conversely, Title Insurance net premiums and fees earned grew by 34.0% for 2021, attributable to a low interest rate environment and a robust real estate market. Increased revenue generated on purchase transactions was partially offset by a decline in refinance activity. Net investment income increased for 2022, reflecting growth in the invested asset base and higher investment yields earned. For 2021, net investment income also reflected growth in the invested asset base, however was somewhat offset by lower investment yields.

The 2022 Title Insurance loss ratio decreased slightly due predominantly to higher levels of favorable development as a percentage of premium. The 2022 expense ratio was elevated compared to 2021, generally reflecting the combination of lower directly produced revenues that carry higher fixed expenses, and to a lesser extent, a greater proportion of agency produced revenues that have a higher overall expense ratio. The 2022 full year expense ratio also reflects the impact of a fourth quarter state sales tax assessment payment of $17.2 (0.5 percentage points) for which the Company is currently pursuing recovery. Title Insurance's 2021 expense ratio reflects the benefit of greater leverage of the expense structure on significantly higher premium and fee volume, tempered by an increased mix of agency produced revenues late in 2021.

Together, these factors produced profitable combined ratios, albeit lower pretax operating income for 2022.

The following table shows recent annual loss ratios and the effects of loss development trends:

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RFIG Run-off Segment Operating Results - Mortgage Insurance

Pretax operating results of RFIG Run-off reflect the continuing drop in net earned premiums in line with the declining risk in force. For 2022, favorable reserve development was the primary driver of the reduction in loss costs. Higher current year loss costs resulted from moderation in cure trends and increasing claim severity. Claim costs in 2021 reflect fewer newly reported delinquencies along with improved trends in cure rates and lower claim severity influenced by the ongoing economic recovery and strength in the real estate market. Net investment income decreased in 2022 and 2021, reflecting a declining invested asset base, driven by the payment of extraordinary dividends of $140.0, $100.0 and $37.5 to the parent company during 2022, 2021 and 2020, respectively, and lower investment yields earned.

The following table shows recent annual loss ratios and the effects of loss development trends:

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Corporate & Other Operating Results

This segment includes a small life and accident insurance business and the net costs associated with the parent holding company and several internal corporate services subsidiaries. The segment tends to produce highly variable results stemming from volatility inherent from the lack of scale. Interest expense for 2022 and 2021 increased due to the issuance of $650 million of debt late in the second quarter of 2021, partially offset by net investment income from a higher invested asset base and higher investment yields earned.

Summary Consolidated Balance Sheet

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Cash, Invested Assets, and Shareholders' Equity

Old Republic's invested assets portfolio is directed in consideration of enterprise-wide risk management objectives. Most importantly, these are intended to ensure solid funding of the insurance subsidiaries' long-term claim payment obligations to policyholders and their beneficiaries, as well as the long-term stability of the subsidiaries’ capital base. For these reasons, the investment portfolio does not contain significant levels of high risk or illiquid asset classes and has extremely limited exposure to collateralized debt obligations (CDO's), credit default and interest rate swaps, hybrid securities, asset-backed securities (ABS), guaranteed investment contracts (GIC), structured investment vehicles (SIV), auction rate variable short-term securities, limited partnerships, derivatives, hedge funds or private equity investments. Moreover, the Company does not engage in hedging or securities lending transactions, nor does it invest in securities whose values are predicated on non-regulated financial instruments exhibiting amorphous or unfunded counter-party risk attributes.

As of December 31, 2022, the consolidated investment portfolio reflected an allocation of approximately 80% to fixed income (bonds and notes) and short-term investments, and 20% to equity securities (common stock). During 2022, management rebalanced the investment portfolio, thereby reducing its equity holdings and reinvesting the proceeds in fixed income securities. The fixed income portfolio continues to be the anchor for the insurance underwriting subsidiaries' obligations. The maturities of our fixed income assets are matched to the expected liabilities for claim payment obligations to policyholders and their beneficiaries. The quality of the investment portfolio remains at high levels.

A significant portion of our investable funds have been directed toward high-quality common stocks of U.S. companies. We favor those with long-term records of reasonable earnings growth and steadily increasing dividends. Pursuant to our enterprise risk management guidelines and controls, we perform regular stress tests of the equity portfolio to gain reasonable assurance that periodic downdrafts in market prices would not seriously undermine our financial strength and the long-term continuity and prospects of our insurance underwriting business.

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Changes in shareholders' equity per share are reflected in the following table. As shown, these resulted mostly from net income excluding net investment gains (losses), realized and unrealized investment gains (losses), and dividend payments to shareholders.

Capitalization

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DETAILED MANAGEMENT ANALYSIS

This section of the Management Analysis of Financial Position and Results of Operations is additive to and should be read in conjunction with the Executive Summary which precedes it.

RESULTS OF OPERATIONS

Consolidated Overview

Premiums & Fees

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

For 2022, consolidated net premiums and fees earned declined 4.1%, reflecting a decrease in Title Insurance of 13.0%, offset by growth in General Insurance of 7.1%. Conversely, consolidated net premiums and fees for 2021 represented growth of 18.8% compared to 2020, with mid-single digit increases in General Insurance and significant growth in Title insurance attributable to a low interest rate environment and a robust real estate market.

Net Investment Income

Net investment income was affected mostly by trends in interest rates and levels of investments. The following tables reflect the segmented and consolidated invested asset bases as of the indicated dates, the investment income earned and resulting yields on such assets. Since the Company can exercise little control over fair values, yields are evaluated on the basis of investment income earned in relation to the cost of the underlying invested assets, though yields based on the fair values of such assets are also shown in the statistics that follow.

Net investment income increased 5.8% in 2022, reflecting growth in the invested asset base and higher investment yields earned. Net investment income decreased by 1.1% in 2021, affected by changes in the invested asset base mainly driven by consolidated operating cash flows and the issuance of debt in 2021, by a concentration of investable assets in interest-bearing securities, and by a lower interest rate environment.

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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 December 31, 2022 and 2021:

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

The percentage of net loss and loss adjustment expenses incurred as a percentage of premiums and related fee revenues of the Company's three major operating segments and for consolidated operations were as follows:

The consolidated loss ratio reflects the changing effects of period-to-period contributions of each segment to consolidated results, and this ratio's variances within each segment. For the three most recent calendar years, the above table indicates that the one-year development of consolidated reserves at the beginning of each year produced favorable developments in 2022, 2021, and 2020, which on average decreased the consolidated loss ratio by 2.5 percentage points.

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. However, 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 it could materially affect its consolidated results of operations for any one annual or interim reporting period. See further discussion in this Annual Report on Form 10-K under Item 1A - Risk Factors.

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Underwriting Acquisition and Other Expenses

The following table sets forth the expense ratios registered by each major business 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. General operating expenses are routinely subject to timing, and can fluctuate with line of coverage mix, as well as investments in business expansion and information technology. The 2022 General Insurance expense ratio generally reflects the shift in line of coverage mix. Investments in new products and geographies in recent years have diversified the General Insurance business, resulting in shifts in the lines of coverage mix toward lines with higher expense ratios and lower current period loss ratios. The 2022 Title Insurance expense ratio was elevated compared to last year, generally reflecting the combination of lower directly produced revenues that carry higher fixed expenses, and to a lesser extent, a greater proportion of agency produced revenues that have a higher overall expense ratio. The 2021 General Insurance expense ratio was also impacted by changes in line of coverage mix and certain operating expense charges. The 2021 Title Insurance ratios reflect the benefit of greater leverage of the expense structure on significantly higher premium and fee volume, tempered by an increased mix of agency produced revenues late in 2021.

Combined Ratios

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

Net Investment Gains (Losses)

The Company's investment policies are not designed to maximize or emphasize the realization of investment gains. Rather, these policies aim for a stable source of income from interest and dividends, protection of capital, and providing 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.

During 2022, net realized investment gains reflect the rebalancing of the investment portfolio as well as tax planning considerations. The Company sold over $2 billion worth of equities and $1.4 billion in fixed income securities as part of the portfolio rebalance and tax planning strategy. The proceeds from these transaction, combined with $1.4 billion of maturities, were reinvested in the fixed income portfolio during the year. Dispositions of fixed income securities from scheduled maturities and early calls were 49.1%, 80.7% and 76.2% of total dispositions occurring in

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2022, 2021, and 2020, respectively. 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. The realization of investment gains or losses can be highly discretionary and can be affected by 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 change considerations, and modifications of investment management judgments regarding the direction of securities markets or the future prospects of individual investees or industry sectors.

Income Taxes

The effective consolidated income tax rates were 19.9%, 20.2%, and 18.9% in 2022, 2021, and 2020, respectively. The rates for each year 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

Premiums & Fees

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

General Insurance net premiums earned increased 7.1% for 2022, driven by growth in most lines of coverage, in particular, commercial automobile. Premium rate increases for most lines of coverages, high renewal retention ratios, and new business production all contributed. General Insurance net premiums earned increased 4.8% for 2021 with rising premiums in commercial automobile, financial indemnity, and property lines of coverage. Strong premium rate increases for most lines of coverage, other than workers' compensation, high renewal retention ratios, and new business production all contributed.

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:

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Overall, the General Insurance loss ratio has improved due to higher levels of favorable development and improving current year loss ratios. The favorable development has come from most years going back to 2009 from commercial automobile and workers' compensation. The property loss ratio was elevated in 2022 primarily due to the impacts of Hurricane Ian, impacted by reinstatement premiums of $16.6 and losses estimated at the Company's $10.0 net retention. The financial indemnity loss ratio in 2022 reflects an elevated level of security class action claims on public company D&O insurance from accident years 2018 and 2019. The Company has received large, compound rate increases on this coverage starting in 2019.

Unfavorable asbestosis and environmental (A&E) claim developments, although not material in any of the periods presented, are typically attributable to periodic re-evaluations of such reserves as well as subsequent reclassifications of other coverages' reserves, most often workers' compensation, deemed assignable to A&E category of losses. Except for a small portion that emanates from ongoing primary insurance operations, a large majority of the A&E claim reserves posted by Old Republic stem mainly from its participations in assumed reinsurance treaties and insurance pools which were discontinued during the 1980's and have since been in run-off status. With respect to the primary portion of gross A&E reserves, Old Republic administers the related claims through its claims personnel as well as outside attorneys, and posted reserves reflect its best estimates of ultimate claim costs. Claims administration for the assumed portion of the Company's A&E exposures is handled by the claims departments of unrelated primary or ceding reinsurance companies. While the Company performs periodic reviews of certain claim files managed by third parties, the overall A&E reserves it establishes respond to the paid claim and case reserve activity reported to the Company as well as available industry statistical data such as survival ratios. Such ratios represent the number of years' average paid losses for the three or five most recent calendar years that are encompassed by an insurer's A&E reserve level at any point in time. According to this simplistic appraisal of an insurer's A&E loss reserve level, Old Republic's average five year paid loss survival ratios stood at 6.4 years (gross) and 7.6 years (net of reinsurance) as of December 31, 2022 and 5.9 years (gross) and 6.8 years (net of reinsurance) as of December 31, 2021. Fluctuations in this ratio between years can be caused by the inconsistent pay out patterns associated with these types of claims. For the five years ended December 31, 2022, incurred A&E claims and related loss settlement cost have averaged .4% of average annual General Insurance loss and loss adjustment expenses.

A summary of reserve activity, including estimates for IBNR, relating to A&E claims at December 31, 2022 and 2021 is as follows:

Sales and General Expenses

The 2022 expense ratios generally reflects the shift in line of coverage mix. Investments in new products and geographies in recent years have diversified the General Insurance business, resulting in shifts in the lines of coverage mix toward lines with higher expense ratios and lower current period loss ratios.

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Title Insurance

Premiums & Fees

Title Insurance premium and fee revenues stemming from the Company's direct operations (which include branch offices of its title insurers and wholly owned agency subsidiaries) represent 19.5% of 2022 consolidated title business revenues. Such premiums are generally recognized as income at the transaction closing date which approximates the policy effective date. Fee income related to escrow and other closing services is recognized when the related services have been performed and completed. The remaining 80.5% of consolidated title premium and fee revenues is produced by independent title agents. Rather than making estimates that could be subject to significant variance from actual premium and fee production, the Company recognizes revenues from those sources upon receipt. Such receipts can result in a three to four month lag relative to the effective date of the underlying title policy, and are offset concurrently by production expenses and loss reserve provisions.

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

Title Insurance net premium and fee earned declined by 13.0% in 2022. Both directly produced and agency produced revenues have declined. The main driver of these trends is increasing mortgage interest rates which continue to drive a steep reduction in refinance activity and to a lesser extent, purchase activity. An uptick in commercial transaction activity resulted in commercial premium growth during the periods reported, and accounted for 22.5%, 15.6% and 16.0% of 2022, 2021 and 2020 earned premium, respectively. Conversely, premiums and fees revenues for 2021 grew by 34.0%. This performance was attributable to a low interest rate environment and a robust real estate market. Increased revenue generated on purchase transactions was partially offset by a decline in refinance activity.

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. Favorable developments of reserves established in prior years continued to reduce the loss ratios as more fully described in the Executive Summary of the Management Analysis of Financial Position and Results of Operations.

Sales and General Expenses

The 2022 expense ratio was elevated compared to last year, generally reflecting the combination of lower directly produced revenues that carry higher fixed expenses, and to a lesser extent, a greater proportion of agency produced revenues that have a higher overall expense ratio. The 2022 full year expense ratio also reflects the impact of a fourth quarter state sales tax assessment payment of $17.2 (0.5 percentage points) for which the Company is currently pursuing recovery. The 2021 Title Insurance ratios reflect the benefit of greater leverage of the expense structure on

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significantly higher premium and fee volume, tempered by an increased mix of agency produced revenues late in 2021.

RFIG Run-off

RFIG Run-off's mortgage guaranty insurance carriers ceased the underwriting of new policies effective August 31, 2011 and the existing book of business was placed in run-off operating mode.

Premiums & Fees

RFIG Run-off's mortgage guaranty premiums primarily stem from monthly installments paid on long-duration, guaranteed renewable insurance policies. Such premiums are written and earned in the month coverage is effective. With respect to relatively few annual or single premium policies, earned premiums are largely recognized on a pro-rata basis over the terms of the policies.

The following tables provide information on production and related risk exposure trends for Old Republic's mortgage guaranty insurance operation:

The results of RFIG Run-off reflected the continuing drop in net earned premiums in line with the declining risk in force.

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Loss and Loss Adjustment Expenses

Certain mortgage guaranty average loss related trends are listed below:

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(a)    Amounts are in whole dollars.

While 2022 mortgage insurance loss costs continued to be favorable, the trends of lower newly reported defaults and higher cure rates on loans already in default are beginning to fall in line with pre-Covid-19 levels.

FINANCIAL POSITION

The Company's financial position at December 31, 2022 reflected increases in assets and liabilities of 0.7% and 5.0%, respectively, and a decrease in common shareholders' equity of (10.5)% when compared to the immediately preceding year-end. Cash and invested assets represented 63.8% and 67.3% of consolidated assets as of December 31, 2022 and 2021, respectively. As of year-end 2022, the cash and invested asset base decreased by 4.6% to $16,047.7.

Investment Portfolio

During 2022, the Company reduced its equity holdings and reinvested the proceeds primarily in intermediate-term, investment grade fixed income securities. Old Republic continues to adhere to its long-term policy of investing primarily in investment grade, marketable securities. At both December 31, 2022 and 2021, nearly all of the Company's investments consisted of marketable securities. The investment portfolio does not contain significant levels of high risk or illiquid asset classes and has extremely limited exposure to collateralized debt obligations (CDO's), credit default and interest rate swaps, hybrid securities, asset-backed securities (ABS), guaranteed investment contracts (GIC), structured investment vehicles (SIV), auction rate variable short-term securities, limited partnerships, derivatives, hedge funds or private equity investments. Moreover, the Company does not engage in hedging or securities lending transactions, nor does it invest in securities whose values are predicated on non-regulated financial instruments exhibiting amorphous or unfunded counter-party risk attributes. At December 31, 2022, the Company had no fixed income investments in default as to principal and/or interest.

Several years ago, interest rates dropped to a level where the Company had the opportunity to invest in high quality dividend paying equity securities to attain a higher yield than could be earned from fixed income investments with similar risk profiles. This equity portfolio grew to a high of more than 30% of the entire consolidated portfolio, including a large amount of unrealized gains. In early 2022, management decided to rebalance the portfolio and reduce its equity holdings. This decision was precipitated by several factors: the overall economic backdrop, a rapidly increasing level of inflation, the Federal Reserve signaling a tightening of monetary policy, and increasing interest rates. As a result, the Company replaced the yield that has been provided by the equity portfolio with a lower risk (in terms of volatility) source of net investment income. The Company sold more than $2 billion worth of equities, all of which were within 11% of their 52 week highs. This generated $374.5 in net realized gains on sales. As part of a tax planning initiative, the Company took advantage of depressed fixed income values from the rising interest rate environment and sold enough fixed income securities in a loss position to offset all but $62.2 in net realized gains.

Following the rebalancing, at December 31, 2022, the portfolio is comprised of 20% equities and 80% fixed income and short-term investments. These transactions, along with the reinvestment of approximately $1.4 billion of maturities increased the ending fixed income portfolio yield from 2.40% as of December 31, 2021 to 3.32% as of December 31, 2022.

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. Short-term investment levels were elevated at December 31, 2022 due to the timing of reinvesting funds from sales of investments and the planned funding of the Company's share repurchase program.

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

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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 shareholders' equity account, and as a separate component of the 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:

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(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.

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The level of gross unrealized losses for this portfolio is primarily driven by changes in the interest rate environment.