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Employee Benefit Plans
12 Months Ended
Dec. 31, 2021
Compensation Related Costs [Abstract]  
Employee Benefit Plans Employee Benefit Plans
The funded status of the Company's pension plan is reflected below.
Years Ended December 31:202120202019
Projected benefit obligation at beginning of year$639.7 $586.4 $530.1 
Increases (decreases) during the year attributable to:
Interest cost15.2 19.1 22.6 
Actuarial (gains) losses(22.2)60.8 59.8 
Benefits paid(28.0)(26.6)(26.0)
Net increase (decrease) for the year(35.1)53.3 56.3 
Projected benefit obligation at end of year$604.6 $639.7 $586.4 
Years Ended December 31:202120202019
Fair value of net assets available for plan benefits
At beginning of the year$479.6 $492.8 $430.2 
Increases (decreases) during the year attributable to:
Actual return on plan assets104.4 6.8 82.1 
Sponsor contributions— 6.6 6.5 
Benefits paid(28.0)(26.6)(26.0)
Net increase (decrease) for year76.3 (13.1)62.5 
Fair value of net assets available for plan benefits
At end of the year$556.0 $479.6 $492.8 
Funded status$(48.6)$(160.1)$(93.6)
Amounts recognized in accumulated other comprehensive income$(123.2)$(224.8)$(140.5)

Funding of the Plan is dependent on a number of factors including actual performance versus actuarial assumptions made at the time of the actuarial valuation, as well as the maintenance of certain funding levels relative to regulatory requirements. The Company currently does not expect to make cash contributions in calendar year 2022 based on minimum funding requirements.

Net periodic pension expense (income) recognized during 2021, 2020 and 2019 was $(9.8), $(11.0), and $(3.0), respectively.

The projected benefit obligation and net periodic benefit cost for the Plan were determined using the following weighted-average assumptions:
Projected Benefit ObligationNet Periodic Benefit Cost
As of December 31:20212020202120202019
Settlement discount rates2.80 %2.45 %2.45 %3.35 %4.40 %
Long-term rates of return on plan assetsN/AN/A7.00 %7.00 %7.00 %

The assumed settlement discount rates were determined by matching the current estimate of the Plan's projected cash outflows against spot rate yields on a portfolio of high quality bonds as of the measurement date. To develop the expected long-term rate of return on assets assumption, historical returns and the future return expectations for each asset class, as well as the target asset allocation of the pension portfolio were considered. The investment policy of the Plan takes into account the matching of assets and liabilities, appropriate risk aversion, liquidity needs, the
preservation of capital, and the attainment of modest growth. The weighted-average asset allocations of the Plan were as follows:
Investment Policy Asset
Allocation % Range Target
As of December 31:20212020
Equity securities:
Common shares of Company stock12.5 %11.7 %
Other74.6 74.0 
Sub-total87.1 85.7 40% to 80%
Fixed maturity securities10.4 10.6 15% to 60%
Other2.5 3.7    1% to 10%
Total100.0 %100.0 %

Quoted values and other data provided by the respective investment custodians are used as inputs for determining fair value of the Plan's debt and equity securities. The custodians are understood to obtain market quotations and actual transaction prices for securities that have quoted prices in active markets and use their own proprietary method for determining the fair value of securities that are not actively traded. In general, these methods involve the use of "matrix pricing" in which the investment custodian uses observable market inputs, including, but not limited to, investment yields, credit risks and spreads, benchmarking of like securities, broker-dealer quotes, reported trades and sector groupings to determine a reasonable fair value.

The following tables present a summary of the Plan's assets segregated among the various input levels described in Note 2.
Fair Value Measurements
As of December 31, 2021:Level 1Level 2Level 3Total
Equity securities:
Common shares of Company stock$69.5 $— $— $69.5 
Other414.5 — — 414.5 
Sub-total484.1 — — 484.1 
Fixed maturity securities— 57.9 — 57.9 
Other7.2 — 2.6 9.9 
Total at fair value$491.3 $57.9 $2.6 551.9 
Securities at net asset value4.0 
Total$556.0 
As of December 31, 2020:
Equity securities:
Common shares of Company stock$55.7 $— $— $55.7 
Other341.7 — — 341.7 
Sub-total397.4 — — 397.4 
Fixed maturity securities2.0 49.0 — 51.0 
Other9.6 — 4.5 14.2 
Total at fair value$409.1 $49.0 $4.5 462.7 
Securities at net asset value16.8 
Total$479.6 

Level 1 assets include U.S. Treasury notes, publicly traded common stocks, mutual funds and short-term investments. Level 2 assets generally include corporate and government agency bonds. Level 3 assets primarily consist of an immediate participation guaranteed fund.

The benefits expected to be paid as of December 31, 2021 for the next 10 years are as follows: 2022: $31.9; 2023: $32.8; 2024: $33.4; 2025 $33.8; 2026: $34.4 and for the five years after 2026: $170.5.

The Company has a number of profit sharing and other incentive compensation programs for the benefit of a substantial number of its employees. The costs related to such programs are summarized below:
Years Ended December 31:202120202019
Employees Savings and Stock Ownership Plan ("ESSOP")$44.6 $30.6 $21.7 
Other profit sharing plans26.1 24.0 18.4 
Cash and deferred incentive compensation$71.6 $53.7 $48.3 
A majority of the Company's employees participate in the ESSOP. Company contributions are provided in the form of Old Republic common stock. Dividends on shares are allocated to participants as earnings, and likewise invested in Company stock; dividends on unallocated shares are used to pay debt service costs. The Company's annual contributions are based on a formula that takes the growth in net operating income per share over consecutive five year periods into account. During 2015, the ESSOP purchased 2,200,000 shares of Old Republic common stock for $34.0. The purchases were financed by a loan from the Company. During 2018, the ESSOP purchased 2,383,625 shares of Old Republic common stock for $50.0 and during 2020, the ESSOP purchased 3,337,000 shares of Old Republic common stock for $50.0. These purchases were financed by loans to the ESSOP from participating subsidiaries. As of December 31, 2021, there were 18,991,924 Old Republic common shares owned by the ESSOP, of which 12,958,437 were allocated to employees' account balances. There are no repurchase obligations in existence.

As periodically amended, the Company has had a stock based compensation plan in effect for certain eligible employees since 1978. Under the 2016 Incentive Compensation Plan (the "Incentive Plan"), 15.0 million shares became available for future awards. The maximum number of options available as of December 31, 2021 for future issuance under this amended plan was approximately 4.7 million shares.

The exercise price of stock options is equal to the closing market price of the Company's common stock on the date of grant, and the contractual life of the grant is generally ten years from the date of grant. Options granted may be exercised to the extent of 10% of the number of shares covered thereby as of December 31st of the year of the grant and, cumulatively, to the extent of an additional 15%, 20%, 25% and 30% on and after the second through fifth calendar years, respectively. Options granted to employees who meet certain retirement eligibility provisions are fully vested on the date of grant.

The following table presents the stock based compensation expense and income tax benefit recognized in the financial statements:
Years Ended December 31:202120202019
Stock based compensation expense$3.2 $2.1 $3.7 
Income tax benefit$.6 $.4 $.7 

The following table presents the key assumptions used to value the awards granted during the periods presented. Expected volatilities are based on the historical experience of Old Republic's common stock. The expected term of stock options represents the period of time that stock options granted are assumed to be outstanding. The Company uses historical data to estimate the effect of stock option exercise and employee departure behavior; groups of employees that have similar historical behavior are considered separately for valuation purposes. The risk-free rate of return for periods within the contractual term of the share option is based on the U.S. Treasury rate in effect at the time of the grant.
202120202019
Expected volatility.20 .17 .18 
Expected dividends4.76 %5.72 %4.10 %
Expected term (in years)777
Risk-free rate1.21 %.72 %2.54 %

A summary of stock option activity under the Incentive Plan as of December 31, 2021, 2020 and 2019, and changes in outstanding options during the years then ended is presented below:
As of and for the Years Ended December 31,
202120202019
SharesWeighted
Average
Exercise
Price
SharesWeighted
Average
Exercise
Price
SharesWeighted
Average
Exercise
Price
Outstanding at beginning of year9,494,651 $18.36 8,009,237$18.43 7,163,567 $17.24 
Granted2,216,250 21.30 1,901,10017.24 1,777,500 21.14 
Exercised3,259,273 17.28 397,65314.44 848,923 14.14 
Forfeited and expired107,158 18.32 18,03316.72 82,907 17.05 
Outstanding at end of year8,344,470 19.57 9,494,65118.36 8,009,237 18.43 
Exercisable at end of year4,652,951 $19.22 6,138,602$17.81 5,100,009 $17.18 
Weighted average fair value of
    options granted during the year (a)$1.86 per share$.88 per share$2.35 per share
__________

(a) Based on the Black-Scholes-Merton option pricing model and the assumptions outlined above.
A summary of stock options outstanding and exercisable at December 31, 2021 follows:
Options OutstandingOptions Exercisable
Weighted - AverageWeighted
Average
Exercise
Price
Exercise PricesYear of GrantNumber
Outstanding
Remaining
Contractual
Life
Exercise
Price
Number
Exercisable
$10.80201226,925 0.25$10.80 26,925 $10.80 
$12.572013133,225 1.2512.57 133,225 12.57 
$16.062014256,700 2.2516.06 256,700 16.06 
$15.262015310,157 3.2515.26 310,157 15.26 
$18.142016498,291 4.2518.14 498,291 18.14 
$19.982017867,958 5.2519.98 867,958 19.98 
$20.9820181,133,162 6.2520.98 830,420 20.98 
$21.12to$21.9920191,486,282 7.2521.14 820,072 21.14 
$16.17to$22.7220201,587,670 8.2517.21 487,334 17.44 
$21.3020212,044,100 9.2521.30 421,869 21.30 
Total8,344,470 $19.57 4,652,951 $19.22 

As of December 31, 2021, there was $3.4 of total unrecognized compensation cost related to nonvested stock-based compensation arrangements granted under the plan. That cost is expected to be recognized over a weighted average period of approximately 3 years.

The cash received from stock option exercises, the total intrinsic value of stock options exercised, and the actual tax benefit realized for the tax deductions from option exercises are as follows:
202120202019
Cash received from stock option exercise$56.3 $5.7 $12.0 
Intrinsic value of stock options exercised24.2 2.8 6.8 
Actual tax benefit realized for tax deductions
from stock options exercised
$5.0 $.5 $1.4 

At December 31, 2021, the Company had restricted common stock issued to certain employees which are expected to vest over a weighted average period of approximately 3 years. During the vesting period, restricted shares are nontransferable and subject to forfeiture. Compensation expense for the restricted stock award is recognized over the vesting period of the award and was immaterial for the years ended December 31, 2021, 2020 and 2019.