OVERVIEW

This management analysis of financial position and results of operations pertains to the consolidated accounts of Old Republic International Corporation ("Old Republic" or "the Company"). The Company conducts its operations through three major regulatory segments, namely, its General (property and liability), Mortgage Guaranty, and Title insurance segments. A small life and health insurance business, accounting for 2.6% of consolidated operating revenues for the six months ended June 30, 2008 and 2.1% of consolidated assets as of June 30, 2008, is included within the corporate and other caption of this financial report. The consolidated accounts are presented on the basis of generally accepted accounting principles ("GAAP"). This management analysis should be read in conjunction with the consolidated financial statements and the footnotes appended to them.

The insurance business is distinguished from most others in that the prices (premiums) charged for various insurance coverages are set without certainty of the ultimate benefit and claim costs that will emerge or be incurred, often many years after issuance and expiration of a policy. This basic fact casts Old Republic as a risk-taking enterprise managed for the long run. Management therefore conducts the business with a primary focus on achieving favorable underwriting results over cycles, and on the maintenance of financial soundness in support of the insurance subsidiaries' long-term obligations to insurance beneficiaries. To achieve these objectives, adherence to insurance risk management principles is stressed, and asset diversification and quality are emphasized. 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 shareholders' capital. Investment management aims for stability of income from interest and dividends, protection of capital, and sufficient 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 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 maturity and equity securities for long periods of time is in turn enabled by the scheduling of maturities in contemplation of an appropriate matching of assets and liabilities.

In light of the above factors, the Company's affairs are managed without regard to the arbitrary strictures of quarterly or even annual reporting periods that American industry must observe. In Old Republic's view, such short reporting time frames do not comport well with the long-term nature of much of its business. Management believes that the Company's operating results and financial condition can best be evaluated by observing underwriting and overall operating performance trends over succeeding five to ten year intervals. Such extended periods can encompass one or two economic and/or underwriting cycles, and thereby provide appropriate time frames for such cycles to run their course and for reserved claim costs to be quantified with greater finality and effect.

EXECUTIVE SUMMARY

Old Republic's consolidated operating results, which exclude net realized investment gains or losses, declined significantly in this year's second quarter and first half. The reduced performance stemmed from continued weakness in the Company's housing-related mortgage guaranty and title insurance lines. Management believes that the substantial dislocations that have enveloped all businesses with housing and mortgage-lending exposures are likely to exert negative pressures on earnings well into 2009. These lowered expectations aside, the Company's strong financial underpinnings and the overall earnings sustainability of its general insurance business should provide necessary earnings support and capital management flexibility for the anticipated resumption of positive operating earnings trends in 2010 and beyond.

The year-over-year decline in book value per share stemmed from the reduction in net income, cash outlays for dividends to shareholders, and from currently lower securities market valuations for fixed maturity and equity investments.

Consolidated Results - The major components of Old Republic's consolidated results were as follows for the periods shown:

Quarters Ended June 30, Six Months Ended June 30,

Operating revenues:
General
insurance                            $   561.3   $   612.2     -8.3 %   $ 1,142.9   $ 1,202.0     -4.9 %
Mortgage
guaranty                                 173.6       147.0     18.1         346.1       286.4     20.8
Title
insurance                                179.3       236.5    -24.2         346.4       453.7    -23.6
Corporate and
other                                     22.9        23.1                   52.5        47.6
Total                                $   937.4   $ 1,018.9     -8.0 %   $ 1,888.1   $ 1,989.8     -5.1 %
Pretax operating income (loss):
General
insurance                            $    56.3   $   108.7    -48.2 %   $   146.1   $   211.7    -31.0 %
Mortgage
guaranty                               (140.7)        36.8   -481.6       (263.1)        85.1   -408.8
Title
insurance                                (4.5)         3.6   -223.7        (17.2)         4.3   -493.2
Corporate and
other                                      1.4         4.5                    6.0         5.2
Sub-total                               (87.5)       153.8   -156.9       (128.1)       306.5   -141.8
Realized investment gains (losses):
From sales                                 6.8        13.3                    7.7        16.3
From
impairments                            (437.3)           -                (437.3)           -
Net realized
  investment gains (losses)            (430.5)        13.3                (429.6)        16.3
Consolidated pretax
 income
(loss)                                 (518.1)       167.2   -409.9       (557.7)       322.9   -272.7
Income taxes
(credits)                              (153.3)        52.0   -394.8       (173.9)        99.9   -274.0
Net income
(loss)                               $ (364.7)   $   115.1   -416.8 %   $ (383.8)   $   222.9   -272.2 %

Consolidated underwriting ratio:

Benefits and claims ratio                     82.0 %   51.4 %          79.3 %   50.0 %
Expense ratio                                 39.1     41.5            39.1     42.5
Composite ratio                              121.1 %   92.9 %         118.4 %   92.5 %


Components of diluted
 earnings per share:
Net operating income (loss)     $ (0.22)   $   0.45   -148.9 %   $ (0.30)   $  0.91   -133.0 %
Net realized
  investment gains
(losses)                          (1.36)       0.04                (1.36)      0.04
Net income
(loss)                          $ (1.58)   $   0.49   -422.4 %   $ (1.66)   $  0.95   -274.7 %

The above table shows both operating and net income to highlight the effects of realized investment gain or loss recognition and any non-recurring items on period-to-period comparisons. Operating income, however, does not replace net income computed in accordance with Generally Accepted Accounting Principles ("GAAP") as a measure of total profitability.

The recognition of realized investment gains or losses can be highly discretionary and arbitrary due to such factors as the timing of individual securities sales, recognition of estimated losses from write-downs for impaired securities, tax-planning considerations, and changes in investment management judgments relative to the direction of securities markets or the future prospects of individual investees or industry sectors. Likewise, non-recurring items which may emerge from time to time, can distort the comparability of the Company's results from period to period. Accordingly, management uses net operating income, a non-GAAP financial measure, to evaluate and better explain operating performance, and believes its use enhances an understanding of Old Republic's basic business results.

General Insurance Results - First half 2008 general insurance earnings were mainly affected by moderately lower earned premiums and the higher claim ratios shown in the following table:

  General Insurance Group


  Quarters Ended June 30,   Six Months Ended June 30,


                         2008      2007     Change      2008        2007      Change
Net premiums earned     $ 494.2   $ 540.1    -8.5 %   $ 1,007.0   $ 1,061.9    -5.2 %
Net investment income      62.6      64.7    -3.1         127.1       127.5    -0.3
Pretax operating income $  56.3   $ 108.7   -48.2 %   $   146.1   $   211.7   -31.0 %

Claims ratio 76.0 % 67.3 % 72.9 % 66.0 % Expense ratio 24.5 23.6 24.5 25.2 Composite ratio 100.5 % 90.9 % 97.4 % 91.2 %

Earned premiums trended lower in this year's first six months. A moderately declining rate environment for most commercial insurance prices in the past 30 months or so has hindered meaningful additions to Old Republic's premium base. For the first six months of 2008, the slightly lower top line was accompanied by increases in the claims ratios shown in the above table. These ratios compare to an average of 66.8% for the five most recent calendar years. This year's higher claims ratio is attributable to the combination of greater loss costs for most insurance coverages and the effect of the above noted moderate premium rate decline. The increased loss ratios, however, were most accentuated for Old Republic's consumer credit indemnity and general aviation coverages.

Expense-wise, the lower ratio for this year's first half compared favorably with the 25.2% registered in the same period last year, and the average of 24.8% for the five years through 2007. The slight decline in 2008 reflects temporary or cycle-related differences in volume contributions from insurance coverages experiencing varying year-over-year production volumes and expense content. In the near term, however, these differences should attenuate and trend toward longer term averages.

General Insurance Group net investment income reflects lower investment yields on a greater invested asset base.

Mortgage Guaranty Results - A continued rise in claim costs, driven mainly by higher mortgage loan delinquencies and claim severity, more than offset strong double digit increases in net premiums earned for this year's first half. As a consequence, pretax operating results were unprofitable for the fourth consecutive quarter. Key indicators of this cyclical reversal in profitability for Old Republic's second largest business segment are shown below and in the accompanying statistical exhibit.

  Mortgage Guaranty Group


  Quarters Ended June 30,   Six Months Ended June 30,


                                 2008       2007      Change      2008       2007      Change
Net premiums earned            $   149.1   $ 125.0     19.3 %   $   296.7   $ 243.0     22.1 %
Net investment income               21.4      19.0     12.6          42.9      37.9     13.2
Pretax operating income (loss) $ (140.7)   $  36.8   -481.6 %   $ (263.1)   $  85.1   -408.8 %

Claims ratio 192.5 % 65.9 % 186.9 % 60.3 % Expense ratio 16.2 19.8 16.3 20.3 Composite ratio 208.7 % 85.7 % 203.2 % 80.6 %

Mortgage guaranty premium growth in this year's second quarter and first half was mostly due to a 31.6% increase in traditional primary risk in force at June 30, 2008 vis-à-vis the same period of 2007. This increase stems from rising new insurance writings during the most recent four quarters as a result of greater market demand for traditional primary coverage and from higher business persistency (79.9% on an annualized basis as of June 2008 versus 74.7% as of June 2007.)

The unprecedented cyclical downturn in housing and related mortgage finance industries affecting this Old Republic segment since 2007, however, contributed to the above noted offsetting impact of higher claim costs. Such costs reflect the combination of unfavorable loan default trends, greater claim severity caused by the larger insured loan values of recent years, and lessened opportunities to mitigate reported claims. Inflated inventories of unsold homes, weakening home values, and a more restrictive credit environment are main causes for the reduced mitigation opportunities.

The disparity between paid and incurred loss ratios shown in the above table stems from much greater claim reserve provisions which accounted for 132.5 loss ratio points in this year's second quarter, compared to just 28.9 loss ratio points in the same quarter of 2007. For the first half, claim reserve provisions produced increases of 129.4 and 24.1 loss ratio points in 2008 and 2007, respectively. For all of 2007 reserve increases accounted for 76.3 points of that year's loss ratio of 118.8%. As of June 30, 2008, net claim reserves of $1.02 billion were approximately 234% higher than they were twelve months earlier, and 60% greater than the amount posted at year end 2007.

The lower production and operating expense ratios for this year's second quarter and first half continued to be a bright spot in operating trends as greater premium volume has not been accompanied by a corresponding increase in fixed operating costs. The beneficial effect of these relatively lower costs and the above-noted increase in earned premiums on bottom line results, however, was fully offset by the more severe impact of greater claim costs.

In combination, the above-cited factors have led to the higher composite ratios shown in the preceding table. Underlining the extreme severity of the current cyclical downturn in the housing and mortgage lending fields, these ratios compare with an average of 74.0% registered during the five years ended December 31, 2007.

Underwriting results notwithstanding, Old Republic's Mortgage Guaranty segment continued to post strong operating cash flows. These have been additive to a very liquid invested asset base which reached $1.95 billion as of June 30, 2008, up 19.9% from the level registered one year earlier. The greater invested asset base was mainly responsible for the investment income growth posted for the periods reported upon.

Title Insurance Results - Old Republic's title insurance business registered an operating loss for this year's first half. Key operating performance indicators are shown in the following table:

  Title Insurance Group


  Quarters Ended June 30,   Six Months Ended June 30,


                                2008      2007      Change      2008      2007      Change
Net premiums and fees earned   $ 172.9   $ 229.5    -24.6 %   $  333.7   $ 439.6    -24.1 %
Net investment income              6.3       6.8     -6.3         12.8      13.5     -5.3
Pretax operating income (loss) $ (4.5)   $   3.6   -223.7 %   $ (17.2)   $   4.3   -493.2 %

Claims ratio 6.8 % 6.4 % 6.9 % 6.2 % Expense ratio 99.4 94.7 101.9 95.7 Composite ratio 106.2 % 101.1 % 108.8 % 101.9 %

The ongoing cyclical downturn in the housing and related mortgage lending sectors of the U.S. economy led to further year-over-year reductions of premium and fee revenues for the Company's title segment. Direct production facilities in the Western United States continued to sustain the greatest adverse effects of this downturn. Claims ratios in 2008 have trended slightly higher as they did for all of 2007. While overall 2008 production and operating expenses have dropped significantly, the decline continues to be insufficient to counter the larger reduction in title premium and fees revenues.

Corporate and Other Operations - The Company's small life and health insurance business and the net costs associated with the parent holding company and internal services subsidiaries produced a greater gain in this year's first half. Period-to-period variations in the results of these relatively minor elements of Old Republic's operations usually stem from the volatility inherent to the small scale of its life and health business, fluctuations in the costs of external debt, and net interest on intra-system financing arrangements.

Cash, Invested Assets, and Shareholders' Equity - The following table reflects Old Republic's consolidated cash and invested assets as well as shareholders' equity at the dates shown:

                % Change


    June   December   June   June '08/   June '08/
    2008     2007     2007    Dec '07    June '07


Cash and invested assets at       $ 8,691.0   $ 8,924.0   $ 8,407.4    -2.6 %     3.4 %
fair value

Shareholders' equity:
Total                             $ 4,058.9   $ 4,541.6   $ 4,517.6   -10.6 %   -10.2 %
Per common share                  $   17.59   $   19.71   $   19.51   -10.8 %    -9.8 %

Composition of shareholders'
equity per share:
Equity before items below         $   17.33   $   19.31   $   19.39    -3.1 %    -3.5 %
Unrealized investment gains or
losses and other accumulated
comprehensive income                   0.26        0.40        0.12
Total                             $   17.59   $   19.71   $   19.51   -10.8 %    -9.8 %

Consolidated cash flow from operating activities amounted to $328.8 million for the first half of 2008 versus $404.8 million for the same period in 2007. Measured on the basis of original cost, the cash and invested asset base grew by 2.8% to $9.05 billion between year-end 2007 and June 30th of this year, and by 8.4% for the fiscal twelve months ended on the latter date.

The investment portfolio reflects a current allocation of approximately 87% to fixed-maturity securities and 6% to equities. As has been the case for many years, Old Republic's invested assets are managed in consideration of enterprise-wide risk management objectives intended to assure solid funding of its subsidiaries' long-term obligations to insurance policyholders and other beneficiaries. Consequently, it contains little or no insurance risk-correlated asset exposures to real estate, mortgage-backed securities, collateralized debt obligations ("CDO's"), derivatives, junk bonds, or illiquid private equity investments. In a similar vein, the Company does not engage in hedging transactions nor does it invest in securities whose values are predicated on non-regulated financial instruments exhibiting amorphous counter-party risk attributes.

Substantially all changes in the shareholders' equity account reflect the Company's net income or loss, dividend payments to shareholders, and changes in market valuations of invested assets for the periods reported upon.

A summary of all changes in book value per share for the periods reported upon follows:

  Shareholders' Equity Per Share


  Quarter    Six Months   Fiscal Twelve
   Ended       Ended      Months Ended
  June 30,    June 30,      June 30,
    2008        2008          2008


Beginning book value per share                           $  18.99   $  19.71   $  19.51
Changes in shareholders' equity for the periods:
Net operating loss                                         (0.22)     (0.30)     (0.23)
Net realized investment gains (losses):
From sales                                                   0.02       0.02       0.17
From impairments                                           (1.38)     (1.38)     (1.38)
Subtotal                                                   (1.36)     (1.36)     (1.21)
Net unrealized investment gains (losses)                     0.35     (0.13)       0.06
Total realized and unrealized investment gains (losses)    (1.01)     (1.49)     (1.15)
Cash dividends                                             (0.17)     (0.33)     (0.65)
Treasury stock acquired                                         -          -       0.01
Stock issuance, foreign exchange, and other transactions        -          -       0.10
Net change                                                 (1.40)     (2.12)     (1.92)
Ending book value per share                              $  17.59   $  17.59   $  17.59

As indicated in the following table, Old Republic's significant investments in the stocks of two leading publicly held mortgage guaranty businesses (MGIC Investment Corp. and The PMI Group) and that of a national title insurer (LandAmerica Financial Group) account for a substantial portion of the investment losses reflected in the above summary. Unrealized losses, including such losses that are categorized as other-than-temporarily impaired represent the net difference between the most recently established cost and the quarter-end market values of the investments. These three significant investments accounted for approximately 87% of the total net realized investment losses from impairments sustained by the Company. The aggregate cost, market value, latest underlying equity values reported by the three investees, are shown below:

  Values of Three Significant Investments


  As of


  June 30,   March 31,   December 31,
    2008       2008          2007


Total value of the three investments: Original cost        $ 509.8   $ 496.8   $ 435.7
                                      Market value           128.9     231.0     383.6
                                      Underlying equity(*) $ 715.6   $ 689.2   $ 699.6

(*) Underlying equity based on latest reports (usually lagging by one quarter) issued by investees.

When making evaluations of equity and other securities that are currently trading below cost, management considers the Company's ability and intent to retain its investment for a period sufficient to recover their cost and to obtain a competitive long-term total return on such holdings. It also considers the effects of economic cycles, of specific market conditions relative to the industry or operations of the investees, the latter's book values and trends therein, both of which are considered to be more indicative of the long-term intrinsic values of financial sector investees than current market quotations. With particular reference to the above noted mortgage guaranty investees, it also considers their continued acceptability as going concern insurance providers by the U.S. government supported enterprises they serve (Fannie Mae and Freddie Mac). The three holdings were acquired as passive long-term investment additions to two core segments of Old Republic's business. Their acquisitions between the second half of 2007 and early 2008 were also made in the general context of the Company's overall investment strategy and in anticipation of a 2010 turn-around in the mortgage lending and housing markets. In management's judgment, the currently negative market valuations of companies operating in the housing and mortgage-related sectors of the American economy have been impacted significantly by the cyclical macroeconomic conditions affecting these sectors. The combination of Old Republic's necessary long term orientation in the management of its business, its ability to hold these and other securities for the long haul by virtue of the highly liquid quality and asset/liability-matched character of its overall investment portfolio, its commitment to the mortgage guaranty and title insurance segments through cyclical highs and lows, and the strategic importance of these segments to the Company's insurance lines of business diversification is determinative of the long-term value of these securities.

However, based on the Company's current understanding of accounting guidance, a company must take a shorter view by which it evaluates individual securities for their potential other-than-temporary impairements ("OTTI"). Consequently, for external reporting purposes only, and effective with its 2008 financial statements, Old Republic has elected to at once simplify the process and shorten the evaluation time frames it will consider in these regards. In this light, absent issuer-specific circumstances that would require earlier OTTI recognition, all unrealized investment losses pertaining to any equity security amounting to a 20% or greater decline for a six month period will be included

automatically, on a non-judgmental, market value-driven basis in the determination of net income. Unrealized losses exhibiting lesser percentages and shorter periods of declines, and all unrealized gains will continue to be recorded directly in a separate component of the shareholders' equity account and in the consolidated statement of comprehensive income. As a result of accounting idiosyncrasies, OTTI losses recorded in the income statement of one period can not be offset by market value gains on the previously impaired securities unless they are actually sold. Such unrealized market value gains would only be recognized through direct credits in the shareholders' equity account and in the consolidated statement of comprehensive income.

TECHNICAL MANAGEMENT ANALYSIS

CRITICAL ACCOUNTING ESTIMATES

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

Old Republic believes that its most critical accounting estimates relate to: a) the determination of other-than-temporary impairments in the value of fixed maturity and equity investments; b) the establishment of deferred acquisition costs which vary directly with the production of insurance premiums; c) the recoverability of reinsured paid and/or outstanding losses; and d) the establishment of reserves for losses and loss adjustment expenses. The major assumptions and methods used in setting these estimates are discussed in the Company's 2007 Annual Report on Form 10K.

CHANGES IN ACCOUNTING POLICIES

In July 2006, the Financial Accounting Standards Board ("FASB") issued its Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN 48"), which became effective for the Company in the first quarter of 2007. FIN 48 provides recognition criteria and a related measurement model for uncertain tax positions taken or expected to be taken in income tax returns. FIN 48 requires that a position taken or expected to be taken in a tax return be recognized in the financial statements when it is more likely than not that the position would be sustained upon examination by tax authorities. The Company's unrecognized tax benefits, including interest and penalty accruals, are not considered material to the consolidated financial statements and did not change significantly upon the adoption of FIN 48. There are no tax uncertainties that are expected to result in significant increases or decreases to unrecognized tax benefits within the next twelve month period. As indicated in Note 1 of the Notes to Consolidated Financial Statements, the Company believes that the major uncertainties relating to its tax position pertain to timing differences in the recognition of taxable income. Accordingly, the annual effective tax rate, other than possible interest and penalties, would be largely unaffected as an increase in currently due income taxes would likely be offset by a corresponding deferred income tax adjustment.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157 Fair Value Measurements ("FAS 157"), which establishes a framework for measuring fair value. FAS 157 applies to existing accounting pronouncements that . . .