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 2.4% of consolidated operating revenues for the year ended December 31, 2008 and 1.9% of consolidated assets as of December 31, 2008, is included within the corporate and other caption of this 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 products 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.

Old Republic's consolidated operating results, which exclude net investment gains or losses, declined significantly in both the fourth quarter of 2008 and for the year then ended. Substantially all the reduced performance stemmed from continued weakness in the Company's mortgage guaranty and title insurance lines. Given the continuing downtrend in U.S. economic activity and the substantial dislocations that have enveloped all organizations with housing and mortgage-lending exposures, it is likely that these factors will exert additional earnings pressures throughout 2009 and, at the least, a part of 2010. These expectations aside, the Company retains strong capital underpinnings and its general insurance business is expected to remain solidly profitable in 2009.

Full year 2008 net operating losses were magnified by the combination of realized losses from sales of investment securities ($2.7, or $0.01 per share, net of tax), and by downward valuation adjustments for other-than-temporarily impaired securities ($367.5 or $1.59 per share, net of tax). In the aggregate, investment losses from impairments accounted for two thirds of the net loss of $558.3 registered in 2008.

As indicated at the conclusion of this report, the year-over-year decline in book value per share was mostly due to the shortfall in earnings, to cash outlays for regular dividends to shareholders, and to lower market valuations or impairments of fixed maturity and equity investments.

Consolidated Results - The major components of Old Republic's consolidated results and other data for the periods reported upon are shown below:

                                                                                   % Change
                                                                               2008        2007
Years Ended December 31,                   2008        2007        2006      vs. 2007    vs. 2006
Operating revenues:
General insurance                        $ 2,255.9   $ 2,438.0   $ 2,138.7      -7.5 %      14.0 %
Mortgage guaranty                            690.0       608.3       529.9      13.4        14.8
Title insurance                              681.3       878.5     1,007.3     -22.4       -12.8
Corporate and other                           96.8        95.6        99.2
Total                                    $ 3,724.2   $ 4,020.6   $ 3,775.2      -7.4 %       6.5 %
Pretax operating income (loss):
General insurance                        $   294.3   $   418.0   $   401.6     -29.6 %       4.1 %
Mortgage guaranty                          (594.3)     (110.4)       228.4    -438.1      -148.3
Title insurance                             (46.3)      (14.7)        31.0    -214.7      -147.4
Corporate and other                           13.5        15.1           -
Sub-total                                  (332.7)       308.0       661.1    -208.0       -53.4
Realized investment gains (losses):
From sales                                   (4.1)        70.3        19.0
From impairments                           (482.3)           -           -
Net realized investment gains (losses)     (486.4)        70.3        19.0       N/M       270.0 %
Consolidated pretax income (loss)          (819.2)       378.4       680.1    -316.5       -44.4
Income taxes (credits)                     (260.8)       105.9       215.2    -346.2       -50.8
Net income (loss)                        $ (558.3)   $   272.4   $   464.8    -304.9 %     -41.4 %

Consolidated underwriting ratio:

Benefits and claims ratio                           81.8 %         60.2 %        45.3 %     35.9 %     32.9 %
Expense ratio                                       39.1           41.3          44.7       -5.3       -7.6
Composite ratio                                    120.9 %        101.5 %        90.0 %     19.1 %     12.8 %
Components of diluted earnings per share:
Net operating income (loss)                 $       (0.81)   $       0.97   $      1.94   -183.5 %    -50.0 %
Net realized investment gains (losses)              (1.60)           0.20           .05
Net income (loss)                           $       (2.41)   $       1.17   $      1.99   -306.0 %    -41.2 %
Cash dividends paid per share               $         0.67   $       0.63   $       .59      6.3 %      6.8 %
Year end book value per share               $        15.91   $      19.71   $     18.91    -19.3 %      4.2 %

N/M = not meaningful

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 - General insurance operating income for 2008 was affected mainly by moderately lower earned premiums and the higher claim ratios shown in the following table:

                                                     General Insurance Group
                                                                               % Change
                                                                           2008         2007
Years Ended December 31,             2008        2007         2006       vs. 2007     vs. 2006
Net premiums                       $ 1,989.3   $ 2,155.1   $  1,902.1      -7.7 %       13.3 %
earned
Net investment                         253.6       260.8        221.5      -2.8         17.7
income
Pretax operating                   $   294.3   $   418.0   $    401.6     -29.6 %        4.1 %
income



Claims ratio                            73.0 %   67.8 %   65.9 %   7.7 %    2.9 %
Expense ratio                           24.2     24.1     24.4      .4     -1.2
Composite ratio                         97.2 %   91.9 %   90.3 %   5.8 %    1.8 %

Earned premiums trended lower throughout 2008 as a moderately declining rate environment for most commercial insurance prices in the past three years or so has hindered retention of some business and precluded meaningful additions to Old Republic's premium base. The lower top line was accompanied by the above noted rise in claim ratios. The 2008 claim ratios compare to an average of 66.8% posted for the five years ended in 2007. The higher claim ratio for 2008 was attributable to the combination of greater loss costs for most insurance coverages and to the cumulative effect of softening premium rates; the increase in loss costs was most accentuated for Old Republic's consumer credit indemnity and general aviation coverages.

Underwriting and other expenses have remained under good overall control; the resulting expense ratios compare favorably with the average of 24.8% registered in the five years through 2007.

Mortgage Guaranty Results - Full year 2007 and 2008 claim costs grew as a result of higher mortgage loan delinquencies, as well as increased claim frequency and severity. These higher costs were offset to some extent by strong premium revenue gains for 2007 and in the first half of 2008 in particular. Pretax operating results, however, were unprofitable for the second consecutive year. 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
                                                                            % Change
                                                                        2008        2007
   Years Ended December 31,         2008         2007        2006     vs. 2007    vs. 2006
   Net premiums                   $   592.5   $    518.2   $  444.3      14.3 %      16.6 %
   earned
   Net investment                      86.8         79.0       74.3      10.0         6.3
   income
   Pretax operating income        $ (594.3)   $  (110.4)   $  228.4    -438.1 %    -148.3 %
   (loss)



Claims ratio                          199.3 %   118.8 %   42.8 %    67.8 %   177.6 %
Expense ratio                          15.7      17.7     22.5     -11.3     -21.3
Composite ratio                       215.0 %   136.5 %   65.3 %    57.5 %   109.0 %

For the fiscal 12 months ended June 30, 2008, mortgage guaranty earned premiums grew at strong double digit rates. This growth stemmed from higher new insurance writings generated by greater market acceptance of traditional primary coverages and from higher business persistency (83.9% and 77.6% for 2008 and 2007, respectively). Since mid-year 2008, however, premium growth has slowed measurably due to lowered mortgage originations, more selective underwriting guidelines, and competing products offered by the Federal Housing Administration (FHA).

The cyclical downturn in housing and related mortgage finance industries has contributed to the aforementioned 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, though greater numbers of submitted claims are being rescinded due to detected frauds and material deviations from contractually required underwriting standards. As of December 31, 2008, net claim reserves of $1.38 billion were 114.4% higher than they were 12 months earlier. The effect of varying amounts of periodic paid losses and reserve provisions on reported incurred loss ratios is shown in the following table:

                                                           Years Ended December 31,
                                                          2008         2007       2006
Incurred loss ratio from:
Paid                                                      74.8 %        42.5 %    34.9 %
losses
Reserve                                                  124.5          76.3       7.9
provisions
Total                                                    199.3 %       118.8 %    42.8 %

Lower production and operating expense ratios for 2008 and 2007 continued to be a bright spot in operating trends as the greater premium volume has not been accompanied by a corresponding increase in fixed operating costs. The beneficial effect of the relatively lower expense ratios, however, was more than offset by the severe impact of rising claim ratios.

In combination, the above-cited factors produced a continuing uptrend in this segment's 2008 and 2007 composite underwriting ratios, which compare with an average of 56.0% registered for the five years ended December 31, 2006. Underwriting results notwithstanding, Old Republic's Mortgage Guaranty segment continued to post strong operating cash flows. These have been additive to a high quality and liquid invested asset base which reached $2.08 billion as of December 31, 2008, up 14.6% from the level registered one year earlier. This greater invested asset base was mainly responsible for the growth in investment income posted in the periods reported upon.

Title Insurance Results - Old Republic's title insurance business also registered an operating loss for both 2008 and 2007. Key operating performance indicators are shown in the following table:

                                                      Title Insurance Group
                                                                               % Change
                                                                           2008         2007
Years Ended December 31,             2008        2007         2006       vs. 2007     vs. 2006
Net premiums and fees              $   656.1   $   850.7   $    980.0     -22.9 %      -13.2 %
earned
Net investment                          25.1        27.3         26.9      -7.9          1.3
income
Pretax operating income            $  (46.3)   $  (14.7)   $     31.0    -214.7 %     -147.4 %
(loss)



Claims ratio                           7.0 %     6.6 %    5.9 %   6.1 %   11.9 %
Expense ratio                        103.6      98.1     93.6     5.6      4.8
Composite ratio                      110.6 %   104.7 %   99.5 %   5.6 %    5.2 %

The ongoing cyclical downturn in the housing and related mortgage lending sectors of the U.S. economy also led to 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 most significant bottom line adverse effects of this downturn. Claim ratios in 2008 have trended up slightly 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 somewhat larger reduction in title premium and fee revenues. Higher litigation cost reserve provisions added slightly to the expense ratios posted for 2008 and the final quarter of the year.

Corporate and Other Operations - The Company's small life and health insurance business and the net costs associated with the parent holding company and its internal services subsidiaries produced overall net operating gains in 2008. Period-to-period earnings variations for 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
                                                                           2008        2007
As of December 31,                     2008        2007        2006      vs. 2007    vs. 2006
Cash and invested assets - at fair   $ 8,855.1   $ 8,924.0   $ 8,230.8       -.8 %      8.4  %
value
Cash and invested assets - at        $ 9,210.0   $ 8,802.5   $ 8,128.4       4.6 %      8.3  %
original cost

Shareholders' Equity:
  Total                              $ 3,740.3   $ 4,541.6   $ 4,369.2     -17.6 %      3.9  %
  Per common share                   $   15.91   $   19.71   $   18.91     -19.3 %      4.2  %

Composition of shareholders'
equity per share:
  Equity before items below          $   16.10   $   19.31   $   18.72     -16.6 %      3.2  %
  Unrealized investment gains or
losses and other
  accumulated comprehensive income      (0.19)        0.40        0.19
Total                                $   15.91   $   19.71   $   18.91     -19.3 %      4.2  %

Consolidated cash flow from operating activities amounted to $565.6 for the year ended 2008 versus $862.5 for 2007. General insurance and mortgage guaranty operations produced positive, though lower, combined cash flows for 2008, while those of the title segment were negative in both 2008 and 2007.

The investment portfolio reflects a current allocation of approximately 85% to fixed-maturity securities and 4% 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, as well as evaluations of their long-term effect on stability of capital accounts. Accordingly, the Company's exposure to so called "junk bonds", illiquid private equity investments, real estate, mortgage loans, mortgage-backed securities, asset-backed securities, collateralized debt obligations ("CDO's"), guaranteed investment contracts, and derivatives (including credit default swaps, interest rate swaps, or structured investment vehicles, and auction rate variable short-term investments) is either immaterial or non existent. In a similar vein, the Company does not engage in hedging transactions or securities lending operations, 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 and impairments of invested assets for the periods reported upon. A summary of these changes in book value per share follows:

                                                                   Shareholders'
                                                                  Equity Per Share
Years Ended December 31,                                     2008       2007       2006
Beginning book value per                                   $  19.71   $  18.91   $  17.53
share
Changes in shareholders' equity for the periods:
  Net operating income                                        (.81)        .98       1.96
(loss)
  Net realized investment gains (losses):
  From                                                        (.01)        .20        .05
sales
  From                                                       (1.59)          -          -
impairments
  Subtotal                                                   (1.60)        .20        .05
Net unrealized investment gains                               (.33)        .05        .07
(losses)
Total realized and unrealized investment gains (losses)      (1.93)        .25        .12
Cash                                                          (.67)      (.63)      (.59)
dividends
Stock issuance, foreign exchange, and other transactions      (.39)        .20      (.11)
Net                                                          (3.80)        .80       1.38
change
Ending book value per share                                $  15.91   $  19.71   $  18.91

As indicated in the table below, Old Republic's significant investments in the stocks of two leading publicly held mortgage guaranty ("MI") businesses (MGIC Investment Corp. and The PMI Group) account for a substantial portion of the investment losses reflected in the preceding summary. Impairment losses shown in the above table also include $29.7 ($0.13 per share) related to an investment in a national title insurer which declared bankruptcy in the final quarter of 2008. Unrealized losses, including such losses as are categorized as other-than-temporarily impaired ("OTTI") represent the net difference between the most recently established cost and the market values of the investments at a point in time. The two mortgage guaranty investments account for 77.8% of total impairment losses sustained by the Company in 2008; their aggregate cost, market value, and latest reported underlying equity values are shown below.

                                                                       December 31,
                                                                      2008       2007
 Total value of the two    Original                                 $  416.4   $  429.7
 investments:              cost
                           Impaired cost                               106.8        N/A
                           Market                                       82.7      375.1
                           value
                           Underlying                               $  515.9   $  679.7
                           equity(*)

(*) Underlying equity based on latest reports (which may lag by one quarter) issued by investees.

When making investment decisions, management considers the Company's ability to retain its holdings for a period sufficient to recover their cost and to obtain a competitive long-term total return. It also considers such factors as balance sheet effects of potential changes in market valuations, asset-liability matching objectives, long term ability to hold securities, tax planning considerations, and the investees' reported book values and ability to continue as going concerns. The above-noted mortgage guaranty holdings were acquired as passive long-term investment additions to core segments of Old Republic's business in anticipation of a turn-around for the MI industry in 2010. In management's judgment, the currently depressed market valuations of companies operating in the housing and mortgage-lending sectors of the American economy have been impacted significantly by the cyclical and macroeconomic conditions affecting these sectors, and by the recent dysfunctionality of the banking and mortgage lending industries.

For external GAAP reporting purposes, however, Old Republic uses relatively short time frames in recognizing OTTI adjustments in its income statement. In this context, absent issuer-specific circumstances that would result in a contrary conclusion, all unrealized investment losses pertaining to any equity security reflecting a 20% or greater decline for a six month period is considered OTTI. Unrealized losses that are deemed temporary and all unrealized gains are recorded directly as a separate component of the shareholders' equity account and in the consolidated statement of comprehensive income. As a result of accounting idiosyncrasies, however, OTTI losses recorded in the income statement of one period can not be offset in the income statement of a subsequent period by market value gains on the previously impaired securities unless the gains are realized through actual sales. Such unrealized market value gains can only be recognized through direct credits in the shareholders' equity account and in the consolidated statement of comprehensive income.

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 pertinent sections of this Management Analysis and are summarized as follows:

(a) Other-than-temporary impairments in the value of investments:

The Company completes a detailed analysis each quarter to assess whether the decline in the value of any investment below its cost basis is deemed other-than-temporary. All securities in an unrealized loss position are reviewed. Absent issuer-specific circumstances that would result in a contrary conclusion, any equity security with any unrealized investment loss amounting to 20% or greater decline for a six month period is considered OTTI. The decline in value of a security deemed OTTI is included in the determination of net income and a new cost basis is established for financial reporting purposes.

For the three years ended December 31, 2008, pretax charges due to other-than-temporary impairments in the value of securities affected pretax income or loss within a range of -143.2% and 0% and averaged -47.7%.

. . .