Insurance holding company Old Republic International Corp. (ORI), Monday said its third quarter 2009 revenue recognition accounting issue has been resolved, and will now recognize income of $82.5 million, as well as restate its financial statements for the third quarter and nine months ended September 30, 2009.
Chicago-based Old Republic said that under GAAP, certain commutation reinsurance premiums of $82.5 million received by its mortgage guaranty insurance subsidiary from lenders' captive insurers to cover future periods' losses, should have been recognized immediately as income as of the effective date of the reinsurance commutation agreements.
Old Republic said that it currently recognizes income of $82.5 million as a result of the commutations, and will recognize the losses that it is now exposed to because of the termination of the reinsurance in future periods' results when related claim costs are incurred. The premiums received in excess of reinsurance-related receivables previously recorded will now be recognized as a gain.
The restatement results in an increase of previously reported consolidated premium income of $82.5 million, and a decrease of the reported post-tax loss by $53.6 million or $0.23 per share for both the third quarter and first nine months of 2009. The company also noted that the common shareholders' equity account will also be increased by $53.6 million or $0.23 per share as of September 30, 2009.
In November 2009, the company had initially concluded that the economic substance of the captive commutation agreements called for the deferral of the $82.5 million of premiums, which would have been recognized as income over the future periods during which risk would exist and claims would occur.
The restatement follows the company's discussions with the Securities & Exchange Commission and its independent auditors, PricewaterhouseCoopers LLP.
Zucaro, chairman and chief executive officer stated that, "The current travails affecting this segment of the insurance industry have, in Old Republic's view, highlighted the need for more stringent accounting methodology that better addresses the long term interests of both mortgage guaranty insurance beneficiaries and the owners of the business."
ORI is currently trading at $10.57, down $0.07 or 0.66%,on a volume of 0.28 million shares on the NYSE.
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