SECURITIES AND EXCHANGE COMMISSION
OF THE SECURITIES EXCHANGE ACT OF 1934
FORM 10 - Q
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended June 30, 2003 or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number 0-4625
OLD REPUBLIC INTERNATIONAL CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware No. 36-2678171
- ---------------------------------- -----------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
307 North Michigan Avenue, Chicago, Illinois 60601
- --------------------------------------------------------------------------------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: 312-346-8100
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes _X_ No ___
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes _X_ No___
Shares Outstanding
Class June 30, 2003
- ---------------------------------- -----------------------------------
Common Stock / $1 par value 120,810,433
There are 20 pages contained in this report.
OLD REPUBLIC INTERNATIONAL CORPORATION
Report on Form 10-Q / June 30, 2003
INDEX
- --------------------------------------------------------------------------------
PAGE NO.
----------
PART I FINANCIAL INFORMATION:
CONSOLIDATED SUMMARY BALANCE SHEETS 3
CONSOLIDATED SUMMARY STATEMENTS OF INCOME 4
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME 5
CONSOLIDATED STATEMENTS OF CASH FLOWS 6
NOTES TO CONSOLIDATED SUMMARY FINANCIAL STATEMENTS 7 - 11
MANAGEMENT ANALYSIS OF FINANCIAL POSITION AND
RESULTS OF OPERATIONS 12 - 16
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK 17
CONTROLS AND PROCEDURES 17
PART II OTHER INFORMATION 18
SIGNATURE 19
EXHIBIT INDEX 20
2
OLD REPUBLIC INTERNATIONAL CORPORATION
CONSOLIDATED SUMMARY BALANCE SHEETS (Unaudited)
($ in Millions)
- ------------------------------------------------------------------------------------------------------------------------------------
June 30, December 31,
2003 2002
---------------- ----------------
<s> <c> <c>
Assets
Investments: Available for sale:
Fixed maturity securities (at fair value) (cost: $5,137.4 and $2,989.4) $5,510.9 $3,172.4
Equity securities (at fair value) (cost: $480.9 and $520.3) 506.1 513.5
Short-term investments (at fair value which approximates cost) 462.8 253.8
Miscellaneous investments 48.3 ---
---------------- ----------------
Total 6,528.2 3,939.9
---------------- ----------------
Held to maturity:
Fixed maturity securities (at amortized cost) (fair value: $-- and $2,171.7) --- 2,054.1
Miscellaneous investments 8.7 57.4
---------------- ----------------
Total 8.7 2,111.6
---------------- ----------------
Total investments 6,536.9 6,051.5
---------------- ----------------
Other Assets: Cash 40.4 37.2
Accrued investment income 78.8 79.4
Accounts and notes receivable 576.6 512.3
Federal income tax recoverable: Current 1.4 1.0
Reinsurance balances and funds held 66.1 58.1
Reinsurance recoverable: Paid losses 46.0 28.9
Policy and claim reserves 1,548.6 1,500.3
Deferred policy acquisition costs 213.3 197.8
Sundry assets 255.1 248.5
---------------- ----------------
2,826.8 2,663.8
---------------- ----------------
Total Assets $9,363.7 $8,715.4
================ ================
- ------------------------------------------------------------------------------------------------------------------------------------
Liabilities, Preferred Stock and Common Shareholders' Equity
Liabilities: Future policy benefits $98.9 $103.4
Losses, claims and settlement expenses 3,825.1 3,676.8
Unearned premiums 779.3 709.3
Other policyholders' benefits and funds 69.5 62.3
---------------- ----------------
Total policy liabilities and accruals 4,773.0 4,552.0
Commissions, expenses, fees and taxes 183.1 195.2
Reinsurance balances and funds 138.3 133.4
Federal income tax payable: Deferred 537.1 445.2
Debt 139.7 141.5
Sundry liabilities 92.6 91.9
Commitments and contingent liabilities --- ---
---------------- ----------------
Total liabilities 5,864.0 5,559.5
---------------- ----------------
Preferred
Stock: Convertible preferred stock --- ---
---------------- ----------------
Common Common stock (*) 122.7 123.7
Shareholders' Additional paid-in capital 237.8 253.1
Equity: Retained earnings 2,886.6 2,700.5
Accumulated other comprehensive income 262.3 111.0
Treasury stock (at cost) (*) (10.0) (32.6)
---------------- ----------------
Total Common Shareholders' Equity 3,499.6 3,155.8
---------------- ----------------
Total Liabilities, Preferred Stock and Common Shareholders' Equity $9,363.7 $8,715.4
================ ================
(*) At June 30, 2003 and December 31, 2002 there were 500,000,000 shares of
common stock, $1.00 par value, authorized, of which 122,720,795 at June 30,
2003 and 123,791,366 at December 31, 2002 were issued and outstanding. As
of the same dates, there were 100,000,000 shares of Class B Common Stock,
$1.00 par value, authorized, of which no shares were issued. Common shares
classified as treasury stock were 1,910,362 and 3,192,597 as of June 30,
2003 and December 31, 2002, respectively.
See accompanying notes.
3
OLD REPUBLIC INTERNATIONAL CORPORATION
CONSOLIDATED SUMMARY STATEMENTS OF INCOME (Unaudited)
($ in Millions, Except Common Share Data)
- ------------------------------------------------------------------------------------------------------------------------------------
Quarters Ended Six Months Ended
June 30, June 30,
----------------------------------- -----------------------------------
2003 2002 2003 2002
----------------- ----------------- ----------------- -----------------
<s> <c> <c> <c> <c>
Revenues: Net premiums earned $621.2 $512.3 $1,205.2 $1,001.4
Title, escrow and other fees 95.9 63.2 175.6 125.9
----------------- ----------------- ----------------- -----------------
Sub-total 717.2 575.6 1,380.8 1,127.3
Net investment income 70.0 67.7 139.4 134.8
Realized investment gains 12.7 4.4 6.0 14.1
Other income 14.6 10.0 27.4 20.6
----------------- ----------------- ----------------- -----------------
Net revenues 814.6 657.9 1,553.7 1,297.0
----------------- ----------------- ----------------- -----------------
Expenses: Benefits, claims and settlement expenses 274.3 230.3 523.9 455.2
Underwriting, acquisition and
insurance expenses 358.9 283.1 692.8 554.3
Interest and other expenses 1.7 2.6 3.5 5.4
----------------- ----------------- ----------------- -----------------
Total expenses 635.0 516.1 1,220.3 1,015.0
----------------- ----------------- ----------------- -----------------
Income before income taxes and items below 179.5 141.8 333.4 281.9
----------------- ----------------- ----------------- -----------------
Income Taxes: Currently payable 47.5 21.0 90.5 50.4
Deferred 10.3 13.2 16.7 28.3
----------------- ----------------- ----------------- -----------------
Total income taxes 57.9 34.2 107.3 78.7
----------------- ----------------- ----------------- -----------------
121.6 107.5 226.0 203.1
Other items - net --- --- (0.1) (0.1)
----------------- ----------------- ----------------- -----------------
Net Income: $121.5 $107.5 $225.9 $203.0
================= ================= ================= =================
Net Income
Per Share: Basic $1.01 $0.89 $1.87 $1.69
================= ================= ================= =================
Diluted $1.00 $0.88 $1.85 $1.67
================= ================= ================= =================
Dividends Per
Common Share: Cash dividends $0.17 $0.16 $0.33 $0.31
================= ================= ================= =================
Average shares outstanding:
Basic 120,806,189 120,456,722 120,803,205 120,431,510
================= ================= ================= =================
Diluted 121,951,315 121,727,917 121,693,477 121,557,490
================= ================= ================= =================
See accompanying notes.
4
OLD REPUBLIC INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
($ in Millions)
- ------------------------------------------------------------------------------------------------------------------------------------
Quarters Ended Six Months Ended
June 30, June 30,
----------------------------------- -----------------------------------
2003 2002 2003 2002
----------------- ----------------- ----------------- -----------------
<s> <c> <c> <c> <c>
Net income as reported $121.5 $107.5 $225.9 $203.0
----------------- ----------------- ----------------- -----------------
Other comprehensive income (loss):
Foreign currency translation adjustment 6.5 2.9 10.9 3.1
----------------- ----------------- ----------------- -----------------
Unrealized gains (losses) on securities:
Unrealized gains (losses) arising during period 140.2 11.6 221.9 (1.6)
Less: elimination of pretax realized gains
included in income as reported 12.7 4.4 6.0 14.1
----------------- ----------------- ----------------- -----------------
Pretax unrealized gains (losses) on securities
carried at market value 127.5 7.2 215.9 (15.8)
Deferred income taxes (credits) 44.6 2.5 75.5 (5.8)
----------------- ----------------- ----------------- -----------------
Net unrealized gains (losses) on securities 82.8 4.6 140.3 (10.0)
----------------- ----------------- ----------------- -----------------
Net adjustments 89.3 7.6 151.3 (6.8)
----------------- ----------------- ----------------- -----------------
Comprehensive income $210.9 $115.1 $377.2 $196.1
================= ================= ================= =================
See accompanying notes.
5
OLD REPUBLIC INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
($ in Millions)
- ------------------------------------------------------------------------------------------------------------------------------------
Six Months Ended
June 30,
------------------------------------
2003 2002
----------------- -----------------
<s> <c> <c>
Cash flows from operating activities:
Net income $225.9 $203.0
Adjustments to reconcile net income to
net cash provided by operating activities:
Deferred policy acquisition costs (13.1) (7.6)
Premiums and other receivables (47.2) (37.2)
Unpaid claims and related items 92.9 34.1
Future policy benefits and policyholders' funds 67.3 34.4
Income taxes 15.7 21.7
Reinsurance balances and funds (20.4) (10.6)
Accounts payable, accrued expenses and other 10.8 11.7
----------------- -----------------
Total 332.0 249.7
----------------- -----------------
Cash flows from investing activities:
Sales of fixed maturity securities:
Available for sale:
Maturities and early calls 368.7 147.6
Other 105.7 82.4
Held to maturity:
Maturities and early calls --- 109.1
Other --- 1.1
Sales of equity securities 89.7 62.7
Sales of other investments 1.1 1.1
Sales of fixed assets for company use 0.2 0.6
Cash and short-term investments of subsidiary acquired --- 1.7
Purchases of fixed maturity securities:
Available for sale (564.4) (419.7)
Held to maturity --- (46.4)
Purchases of equity securities (58.0) (143.7)
Purchases of other investments (1.2) (1.7)
Purchases of fixed assets for company use (10.2) (6.1)
Other-net (0.7) (0.7)
----------------- -----------------
Total (69.0) (211.8)
----------------- -----------------
Cash flows from financing activities:
Issuance of preferred and common stocks 3.9 19.9
Repayments of term loans --- (15.0)
Redemption of debentures and notes (1.8) (2.4)
Dividends on common shares (39.8) (37.1)
Dividends on preferred shares --- ---
Other-net (13.3) (5.0)
----------------- -----------------
Total (51.0) (39.7)
----------------- -----------------
Increase (decrease) in cash and short-term investments 212.0 (1.8)
Cash and short-term investments, beginning of period 291.1 336.6
----------------- -----------------
Cash and short-term investments, end of period $503.2 $334.8
================= =================
Supplemental disclosure of cash flow information:
Cash paid during the period for: Interest $4.3 $4.7
================= =================
Income taxes $89.9 $49.2
================= =================
See accompanying notes.
6
OLD REPUBLIC INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED SUMMARY FINANCIAL STATEMENTS (Unaudited)
($ in Millions, Except Share Data)
- --------------------------------------------------------------------------------
1. Accounting Policies and Basis of Presentation:
---------------------------------------------
The accompanying consolidated summary financial statements have been
prepared in conformity with generally accepted accounting principles
("GAAP") as described in the Corporation's latest annual report to
shareholders or otherwise disclosed herein. The financial accounting and
reporting process relies on estimates and on the exercise of judgment, but
in the opinion of management all adjustments, consisting only of normal
recurring accruals, necessary for a fair presentation of the accompanying
statements have been reflected therein.
During the first quarter of 2002, the Company adopted Statement of
Financial Accounting Standards No. 142 (FAS 142) "Goodwill and Other
Intangible Assets". Under FAS 142, goodwill and certain intangible assets
will no longer be amortized against operations but must be tested
periodically for possible impairment of their carrying values. The Company
completed the transitional goodwill impairment test required by FAS 142 in
the first quarter of 2002 and determined that there was no indication of
goodwill or intangible asset impairment. During the first quarter of 2003,
the Company tested the carrying value of its goodwill and intangible assets
and determined that there was no indication of impairment of such assets.
Effective January 1, 2003, the Company elected to reclassify its fixed
maturity securities categorized as held to maturity to the available for
sale classification. The securities involved are primarily utility and
tax-exempt bonds that account for approximately 32 percent of Old
Republic's investment portfolio. The decision was prompted by restrictive
accounting rules affecting held to maturity investment securities. The
necessarily mechanical application of these rules can inhibit the
Corporation's ability to optimally manage its investments from a practical
business point of view. As of June 30, 2003, the net impact of this
reclassification on the Corporation's balance sheet is to increase the
carrying value of invested assets by $130.4 million, deferred tax
liabilities by $45.6 million, and shareholders' equity by $84.8 million, or
approximately 70 cents per share. This change has no income statement
impact, no effect on Old Republic's ability or intent to hold individual
securities to maturity as it may deem appropriate, and does not affect the
Company's necessary long-term orientation in the management of its
business. Going forward, Old Republic's shareholders' equity account
determined on the basis of GAAP could, as a result, reflect somewhat
greater period-to-period volatility as the entire bond, note and stock
investment portfolio will be marked to market on a quarterly basis.
During the second quarter of 2003, the Company adopted Statement of
Financial Accounting Standards No. 148 (FAS 148) "Accounting for
Stock-Based Compensation - Transition and Disclosure - an amendment of FAS
No. 123" as described more fully in footnote 2(b) herein.
7
2. Common Share Data:
-----------------
(a) Earnings Per Share - Common share data has been retroactively adjusted
to reflect all stock dividends and splits. The following table provides a
reconciliation of the income and number of shares used in basic and diluted
earnings per share calculations.
Quarters Ended Six Months Ended
June 30, June 30,
--------------------------- ----------------------------
2003 2002 2003 2002
------------- ------------- ------------- --------------
<s> <c> <c> <c> <c>
Numerator:
Income ................................................. $ 121.5 $ 107.5 $ 225.9 $ 203.0
Less preferred stock dividends........................... -- -- -- --
------------- ------------- ------------- --------------
Numerator for basic earnings per share -
income available to common stockholders................ 121.5 107.5 225.9 203.0
Effect of dilutive securities:
Convertible preferred stock dividends.................... -- -- -- --
------------- ------------- ------------- --------------
Numerator for diluted earnings per share -
income available to common stockholders
after assumed conversions................................ $ 121.5 $ 107.5 $ 225.9 $ 203.0
============= ============= ============= ==============
Denominator:
Denominator for basic earnings per share -
weighted-average shares................................ 120,806,189 120,456,722 120,803,205 120,431,510
Effect of dilutive securities:
Stock options............................................ 1,139,616 1,265,685 884,762 1,111,234
Convertible preferred stock.............................. 5,510 5,510 5,510 14,746
------------- ------------- ------------- --------------
Dilutive potential common shares......................... 1,145,126 1,271,195 890,272 1,125,980
------------- ------------- ------------- --------------
Denominator for diluted earnings per share -
adjusted weighted-average shares and
assumed conversions...................................... 121,951,315 121,727,917 121,693,477 121,557,490
============= ============= ============= ==============
Basic earnings per share................................... $ 1.01 $ 0.89 $ 1.87 $ 1.69
============= ============= ============= ==============
Diluted earnings per share................................. $ 1.00 $ 0.88 $ 1.85 $ 1.67
============= ============= ============= ==============
8
(b) Stock Options - The Financial Accounting Standards Board has issued FAS
148 for periods starting after December 15, 2002. As of April 1, 2003, the
Company adopted the requirements of FAS 148 utilizing the prospective
method. Under this method, stock-based compensation expense is recognized
for awards granted after the beginning of the fiscal year of adoption. For
all other stock option awards outstanding, the Company continues to use the
intrinsic value method permitted under existing accounting pronouncements.
The following table shows a comparison of net income and related per share
information as reported, and on a pro-forma basis on the assumption that
the estimated value of stock options was treated as compensation cost. In
estimating the compensation cost of options, the fair value of options at
date of grant has been calculated using the Black-Scholes option pricing
model. Expense recognition of stock options granted in 2003 reduced
earnings per share by less then one cent per share in this years' second
quarter and first half.
Quarters Ended Six Months Ended
June 30, June 30,
--------------------------- ----------------------------
2003 2002 2003 2002
------------- ------------- ------------- --------------
<s> <c> <c> <c> <c>
Comparative data:
Net income:
As reported........................................... $ 121.5 $ 107.5 $ 225.9 $ 203.0
Add: Stock based compensation expense included
in reported income, net of related tax effects .... 0.8 -- 0.8 --
Deduct: Total stock-based compensation expenses
determined under the fair value based method
for all awards, net of related tax effects......... 0.2 -- 3.8 3.0
------------- ------------- ------------- --------------
Pro-forma basis ...................................... $ 122.1 $ 107.5 $ 222.9 $ 200.0
============= ============= ============= ==============
Basic earnings per share:
As reported .......................................... $ 1.01 $ .89 $ 1.87 $ 1.69
Pro-forma basis ..................................... 1.01 .89 1.85 1.66
Diluted earnings per share:
As reported ........................................ 1.00 .88 1.85 1.67
Pro-forma basis ...................................... $ 1.00 $ .88 $ 1.83 $ 1.65
============= ============= ============= ==============
Options were granted during the first quarter of 2003 and 2002 for
1,234,000 and 1,137,600 shares of common stock, respectively. Options
outstanding as of June 30, 2003 and 2002 were 5,810,071 and 4,915,657,
respectively. The maximum number of options available for future issuance
as of June 30, 2003 is 1,438,555.
3. Unrealized Appreciation of Investments:
--------------------------------------
Cumulative net unrealized gains on fixed maturity securities available for
sale and equity securities credited to a separate account in common
shareholders' equity amounted to $262.8 at June 30, 2003. Unrealized
appreciation of investments, before applicable deferred income taxes of
$141.6, at June 30, 2003 included gross unrealized gains and (losses) of
$457.5 and ($53.0), respectively.
For the six months ended June 30, 2003 and 2002, net unrealized
appreciation (depreciation) of investments, net of deferred income taxes
(credits), amounted to $140.3 and ($10.0), respectively.
9
4. Information About Segments of Business
--------------------------------------
The Corporation's business segments are organized as the General Insurance
(property and liability insurance), Mortgage Guaranty, Title Insurance and
Life Insurance Groups. The contributions of Old Republic's insurance
industry segments to consolidated revenues and operating results, and
certain balance sheet data pertaining thereto are shown in the following
tables on the basis of GAAP. Each of the Corporation's segments underwrites
and services only those insurance coverages which may be written by it
pursuant to state insurance regulations and corporate charter provisions.
Segment Reporting
- -----------------------------------------------------------------------------------------------------------------------------------
Quarters Ended Six Months Ended
June 30, June 30,
--------------------------- ----------------------------
2003 2002 2003 2002
------------- ------------- ------------- --------------
<s> <c> <c> <c> <c>
General Insurance Group:
Net premiums earned.................................... $ 339.1 $ 286.3 $ 653.0 $ 555.1
Net investment income and other income (a)............. 49.2 48.7 97.1 96.4
------------- ------------- ------------- --------------
Total............................................. $ 388.3 $ 335.1 $ 750.1 $ 651.5
============= ============= ============= ==============
Income before taxes.................................... $ 62.4 $ 45.1 $ 121.8 $ 85.3
============= ============= ============= ==============
Income tax expense..................................... $ 18.4 $ 1.3 $ 35.9 $ 11.9
============= ============= ============= ==============
Mortgage Guaranty Group:
Net premiums earned.................................... $ 98.7 $ 91.1 $ 198.8 $ 182.7
Net investment income and other income (a)............. 25.7 21.0 50.5 42.9
------------- ------------- ------------- --------------
Total............................................. $ 124.5 $ 112.2 $ 249.3 $ 225.6
============= ============= ============= ==============
Income before taxes.................................... $ 69.8 $ 71.5 $ 145.8 $ 141.9
============= ============= ============= ==============
Income tax expense..................................... $ 23.1 $ 24.2 $ 48.9 $ 47.9
============= ============= ============= ==============
Title Insurance Group:
Net premiums earned.................................... $ 171.2 $ 125.0 $ 325.2 $ 238.9
Title, escrow and other fees ......................... 95.9 63.2 175.6 125.9
------------- ------------- ------------- --------------
Sub-total......................................... 267.2 188.3 500.8 364.8
Net investment income and other income (a)............. 6.0 5.7 11.9 11.5
------------- ------------- ------------- --------------
Total............................................. $ 273.2 $ 194.0 $ 512.8 $ 376.3
============= ============= ============= ==============
Income before taxes.................................... $ 36.4 $ 21.3 $ 62.2 $ 41.5
============= ============= ============= ==============
Income tax expense..................................... $ 12.6 $ 7.3 $ 21.4 $ 14.1
============= ============= ============= ==============
Life Insurance Group:
Net premiums earned.................................... $ 12.0 $ 9.8 $ 28.1 $ 24.6
Net investment income and other income (a)............. 1.7 1.5 3.4 3.4
------------- ------------- ------------- --------------
Total............................................. $ 13.8 $ 11.4 $ 31.5 $ 28.0
============= ============= ============= ==============
Income before taxes.................................... $ 1.9 $ 1.7 $ 3.2 $ 3.3
============= ============= ============= ==============
Income tax expense .................................... $ 0.6 $ 0.6 $ 1.1 $ 1.3
============= ============= ============= ==============
10
Reconciliations of Segments to Consolidated
- -----------------------------------------------------------------------------------------------------------------------------------
Quarters Ended Six Months Ended
June 30, June 30,
--------------------------- ----------------------------
2003 2002 2003 2002
------------- ------------- ------------- --------------
<s> <c> <c> <c> <c>
Revenues:
Total revenues for reportable segments................. $ 799.9 $ 652.9 $ 1,543.9 $ 1,281.6
Net realized investment gains.......................... 12.7 4.4 6.0 14.1
Other revenues......................................... 2.6 1.4 5.3 3.1
Elimination of intersegment revenues (b)............... (0.6) (0.8) (1.6) (1.9)
------------- ------------- ------------- --------------
Total consolidated revenues....................... $ 814.6 $ 657.9 $ 1,553.7 $ 1,297.0
============= ============= ============= ==============
Income before taxes:
Total income before taxes of reportable segments....... $ 170.7 $ 139.7 $ 333.2 $ 272.1
Net realized investment gains.......................... 12.7 4.4 6.0 14.1
Other revenues - net................................... (3.8) (2.4) (5.7) (4.3)
------------- ------------- ------------- --------------
Income before income taxes ....................... $ 179.5 $ 141.8 $ 333.4 $ 281.9
============= ============= ============= ==============
------------
In the above tables, net premiums earned on a GAAP basis differ slightly
from statutory amounts due to certain differences in calculations of
unearned premium reserves under each accounting method.
(a) Including unallocated investment income derived from invested capital
and surplus funds./(b) Represents results of holding company parent,
consolidation eliminating adjustments, and general corporate expenses, as
applicable.
5. Legal Proceedings:
------------------
Legal proceedings against the Company arise in the normal course of
business and usually pertain to claim matters related to insurance policies
and contracts issued by the Corporation's insurance subsidiaries. Other
unusual litigation is discussed below.
In December 1999, a class action lawsuit was filed against the Company's
principal mortgage guaranty insurance subsidiary in the Federal District
Court for the Southern District of Georgia. The suit alleges that the
subsidiary provided pool insurance and other services to mortgage lenders
at preferential, below market prices in return for mortgage insurance
business, and that the practices violated the Real Estate Settlement
Procedures Act. Substantially identical lawsuits were also filed against
all of the other mortgage guaranty insurers. The Company's subsidiary filed
a summary judgment motion which the Court ruled on favorably, dismissing
the lawsuit. The class plaintiffs appealed, and the U.S. Court of Appeals
for the Eleventh Circuit vacated the judgment and remanded the case back to
the District Court. The subsidiary again filed motions seeking summary
judgment on grounds it had asserted earlier but which were not considered
by the District Court and opposing certification of the class. On February
5, 2003, the District Court denied class certification. The plaintiffs
petitioned the Court to reconsider its ruling or, alternatively, to certify
sub-classes. In order to bring the matter to a conclusion and avoid the
uncertainties and expenses of further litigation, the subsidiary entered
into settlement negotiations with the plaintiffs and reached a settlement
which the court preliminarily approved on June 3, 2003. The settlement is
expected to receive final approval at a hearing set for that purpose on
October 24, 2003. From the inception of this litigation through June 30,
2003, the subsidiary has paid or otherwise provided cumulatively $17.8
million to cover legal defense and costs associated with this litigation,
including the costs anticipated under the settlement.
The City and County of San Francisco and certain escrow customers of an
underwritten title agency subsidiary headquartered in the State of
California have filed lawsuits alleging that the subsidiary: 1) failed to
escheat unclaimed escrow funds; 2) charged for services not necessarily
provided; and 3) collected illegal interest payments or fees from banks on
the basis of funds held for escrow customers. The subsidiary in turn
conducted an internal review of its records and concluded that it had
certain liabilities for part of the issues denoted at (1) and (2). The
subsidiary defended against the alleged practice denoted at (3) on the
grounds that such practices are common within the industry, are not in
conflict with any laws or regulations, and other meritorious defenses. The
consolidated lawsuits have been tried and a judgment rendered, affirming in
part and denying in part the subsidiary's defenses. In the aggregate, the
judgment, excluding post-judgment interest, amounts to approximately $33.0
million. The subsidiary has appealed the most significant portions of the
judgment, and management believes the judgment will be substantially
reduced on appeal. Through June 30, 2003, the subsidiary has continually
evaluated its exposures since the litigation began and has paid or
otherwise provided cumulatively $51.2 million, including its best estimate
of its remaining liability and costs associated with all these issues.
11
OLD REPUBLIC INTERNATIONAL CORPORATION
MANAGEMENT ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS
Six Months Ended June 30, 2003 and 2002
- --------------------------------------------------------------------------------
OVERVIEW
This analysis pertains to the consolidated accounts of Old Republic
International Corporation which are presented on the basis of generally accepted
accounting principles ("GAAP"). The Company conducts its business through four
separate segments, namely its General (property and liability coverages),
Mortgage Guaranty, Title, and Life insurance groups. This information should be
read in conjunction with the consolidated financial statements and related
footnotes thereto included elsewhere in this document.
CHANGE IN ACCOUNTING POLICIES
During the first quarter of 2002, the Company adopted Statement of Financial
Accounting Standards No. 142 (FAS 142) " Goodwill and Other Intangible Assets".
Under FAS 142, goodwill and certain intangible assets will no longer be
amortized against operations but must be tested periodically for possible
impairment of their carrying values. At June 30, 2003 and December 31, 2002, the
Company's consolidated unamortized goodwill asset balance was $87.5 million, and
the average annual charge from goodwill amortization to operating results for
the three calendar years ended 2001 was approximately $4.0 million (or 3 cents
per average diluted share). The Company completed the transitional goodwill
impairment test required by FAS 142 in the first quarter of 2002 and determined
that there was no indication of goodwill or intangible asset impairment. During
the first quarter of 2003, the Company tested the carrying value of its goodwill
and intangible assets and determined that there was no indication of impairment
of such assets.
Effective January 1, 2003, the Company elected to reclassify its fixed maturity
securities categorized as held to maturity to the available for sale
classification. The securities involved are primarily utility and tax-exempt
bonds that account for approximately 32 percent of Old Republic's investment
portfolio. The decision was prompted by restrictive accounting rules affecting
held to maturity investment securities. The necessarily mechanical application
of these rules can inhibit the Corporation's ability to optimally manage its
investments from a practical business point of view. As of June 30, 2003, the
net impact of this reclassification on the Corporation's balance sheet is to
increase the carrying value of invested assets by $130.4 million, deferred tax
liabilities by $45.6 million, and shareholders' equity by $84.8 million, or
approximately 70 cents per share. This change has no income statement impact, no
effect on Old Republic's ability or intent to hold individual securities to
maturity as it may deem appropriate, and does not affect the Company's necessary
long-term orientation in the management of its business. Going forward, Old
Republic's shareholders' equity account determined on the basis of GAAP could,
as a result, reflect somewhat greater period-to-period volatility as the entire
bond, note and stock investment portfolio will be marked to market on a
quarterly basis.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 148 (FAS 148) "Accounting for Stock-Based Compensation
- - Transition and Disclosure - an amendment of FAS No. 123" for periods starting
after December 15, 2002. As of April 1, 2003, the Company adopted the
requirements of FAS 148 utilizing the prospective method. Under this method,
stock-based compensation expense is recognized for awards granted after the
beginning of the fiscal year of adoption. For all other stock option awards
outstanding, the Company continues to use the intrinsic value method permitted
under existing accounting pronouncements. In estimating the compensation cost of
options, the fair value of options at date of grant has been calculated using
the Black-Scholes option pricing model. Expense recognition of stock options
granted in 2003 reduced earnings per share by less then one cent per share in
this years' second quarter and first half.
FINANCIAL POSITION
Old Republic's financial position at June 30, 2003 reflected increases in
assets, liabilities and common shareholders' equity when compared to the
immediately preceding year-end of 7.4%, 5.5% and 10.9%, respectively. Cash and
invested assets represented 71.1% and 70.8% of consolidated assets as of June
30, 2003 and December 31, 2002, respectively. Consolidated operating cash flow
was positive at $332.0 million in the six month period, compared to $249.7
million in the same period of 2002. The increase in consolidated operating cash
flow was largely due to contributions by the Company's three largest operating
segments, most notably the General Insurance Group. As of June 30, 2003, the
invested asset base had increased 7.9% to $6.65 billion when compared to the
immediately preceding year-end principally as a result of greater operating cash
flow and an increase in investments carried at fair value following the
aforementioned reclassification of fixed maturity securities.
Relatively high short-term maturity investment positions continued to be
maintained as of June 30, 2003. Such investment positions reflect a large
variety of seasonal and intermediate-term factors including current operating
needs, expected operating cash flows, and investment
12
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. During the first six months of 2003,
the Corporation committed substantially all investable funds in short to
intermediate-term fixed maturity securities. Old Republic continues to adhere to
its long-term policy of investing primarily in investment grade, marketable
securities; investable funds have not been directed to so-called "junk bonds" or
types of securities categorized as derivatives. During the first six months of
2003, Old Republic's investment in equity securities decreased 1.4% in relation
to the related invested balance at year-end 2002 due to sales of equity
securities offset partially by net unrealized gains. At June 30, 2003, the
carrying value of fixed maturity securities in default as to principal and/or
interest was immaterial in relation to consolidated assets or shareholders'
equity.
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. Traditional investment management
tools and techniques are employed to address the yield and valuation exposures
of its invested assets base. The long-term fixed maturity 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 controlled 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
long-term fixed maturity investment portfolio that is not subject to extreme
interest rate sensitivity and principal deterioration. The market value of the
Company's long-term fixed maturity 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 long-term fixed maturity investment portfolio
generally affects net unrealized gains or losses as to securities classified as
available for sale. With a market value of approximately $5.51 billion, the
long-term fixed maturity investment portfolio has an average maturity of 4.1
years and an indicated duration of 3.6. With regard to its $506.1 million equity
portfolio, the Company does not own nor engage in any type of option writing.
Possible declines in values for Old Republic's bond and stock portfolios would
affect negatively the level of the common shareholders' equity account at any
point in time, but would not necessarily result in the recognition of realized
investment losses. In such circumstances, the likely combination of positive
operating cash flow and the scheduled emergence of maturities from the Company's
short duration bond portfolio should provide sufficient funds to meet
obligations to policyholders and claimants, as well as debt service and cash
dividend requirements at the holding company level. The Company reviews the
status and market value changes of its securities portfolio on at least a
quarterly basis during the year, and provisions for other than temporary
impairments in the portfolio's value are evaluated and established at each
quarterly balance sheet date. In management's opinion, the Company's high
quality and diversified portfolio, which consists largely of publicly traded
securities, has been a basic reason for the absence of major impairment
provisions in the periods reported upon. The combination of gains and losses on
sales of securities and such provisions or write-downs of securities are
reflected as realized gains and losses in the income statement. In reviewing
investments for other than temporary impairment, the Company, in addition to a
security's market price history, considers the issuer's operating results,
financial condition and liquidity, its ability to access capital markets, credit
rating trends, most current audit opinion, industry and securities markets
conditions, and analyst expectations, in their totality to reach its
conclusions. The Company recognized other than temporary impairments of
investments in the amounts of $9.5 million and $15.3 million for the six month
periods ended June 30, 2003 and 2002, respectively. Unrealized gains or losses
on securities classified as available for sale and carried at fair value are
reflected directly in shareholders' equity, net of deferred income taxes
(credits).
Among other major assets, substantially all of the Company's receivables are not
past due, and reinsurance recoverable balances on paid or estimated unpaid
losses are deemed to be fairly stated as they are recoverable from solvent
reinsurers or reduced by allowances for estimated unrecoverable balances.
Deferred policy acquisition costs are estimated by taking into account the
variable costs of producing specific types of insurance policies, and evaluating
their recoverability on the basis of recent trends in claims costs. The
Company's deferred policy acquisition cost balances have not fluctuated
substantially from period-to-period and do not represent significant percentages
of assets, shareholders' equity, or premium reserves.
The parent holding company meets its liquidity and capital needs principally
through dividends paid by its subsidiaries. The insurance subsidiaries' ability
to pay cash dividends to the parent company is generally restricted by law or
subject to approval of the insurance regulatory authorities of the states in
which they are domiciled. The Company can receive up to $227.4 million in
dividends from its subsidiaries in 2003 without the prior approval of regulatory
authorities. The liquidity achievable through such permitted dividend payments
is more than adequate to cover the parent holding company's cash outflow
represented mostly by interest on outstanding debt and quarterly cash dividend
payments to shareholders. In addition, Old Republic can access the commercial
paper market for up to $150.0 million to meet unanticipated liquidity needs.
Old Republic's capitalization of $3.63 billion at June 30, 2003 consisted of
debt of $139.7 million, a minor amount of convertible preferred stock, and
common shareholders' equity of $3.49 billion. The increase in the common
shareholders' equity account during the six months ended June 30, 2003 reflects
primarily the retention of earnings in excess of dividend requirements and an
increase in the value of
13
investments carried at market values. In May 2003, the Company canceled 1.2
million common shares previously reported as treasury stock, restoring them to
unissued status; this had no effect on total shareholders' equity or the
financial condition of the Company. At its March 21, 2002 meeting, the Company's
Board of Directors authorized the reacquisition of up to $200.0 million of
common shares as market conditions warrant during the two year period from that
date; no stock has as yet been acquired through June 30, 2003 pursuant to this
authorization.
RESULTS OF OPERATIONS
Revenues:
Pursuant to GAAP applicable to the insurance industry, benefits, claims, and
expenses are associated with the related revenues by means of the provision for
policy benefits, the deferral and subsequent amortization of acquisition costs,
and the recognition of incurred benefits, claims and operating expenses.
Substantially all general insurance premiums are reflected in income on a
pro-rata basis. Earned but unbilled premiums are generally taken into income on
the billing date, and adjustments for retrospective premiums, commissions and
similar charges are accrued on the basis of periodic evaluations of current
underwriting experience and contractual obligations. First year and renewal
mortgage guaranty premiums are recognized as income on a straight-line basis,
except that a portion of first year premiums received for certain high risk
policies is deferred and reported as earned over the estimated policy life,
including renewal periods. Single premiums for mortgage guaranty policies
covering more than one year are earned on an accelerated basis over the policy
term. Title insurance premiums are recognized as income upon the substantial
completion of the policy issuance process. Title abstract, escrow, service, and
other fees are taken into income at the time of closing of the related escrow.
Ordinary life premiums are recognized as revenue when due. Decreasing term
credit life and credit disability/accident & health insurance premiums are
generally earned on a sum-of-the-years-digits or similar method.
The composition of Old Republic's earned premiums and fees for the periods
reported upon was as follows:
Quarters Ended Six Months Ended
June 30, June 30,
---------------------------------------- ------------------------------------------
% %
2003 2002 Change 2003 2002 Change
------------ ------------ ------------ ------------ ------------ ------------
<s> <c> <c> <c> <c> <c> <c>
General.................................. $ 339.1 $ 286.3 18.4% $ 653.0 $ 555.1 17.6%
Mortgage Guaranty........................ 98.7 91.1 8.4 198.8 182.7 8.8
Title.................................... 267.2 188.3 41.9 500.8 364.8 37.3
Life & Health............................ 12.0 9.8 22.8 28.1 24.6 14.0
Consolidated......................... $ 717.2 $ 575.6 24.6% $ 1,380.8 $ 1,127.3 22.5%
======================================== ==========================================
In 2003, general insurance premium growth has resulted principally from the
positive pricing and risk selection changes the Company has effected during the
past three years, as well as additional business produced in an environment
marked by a more restrictive marketing stance on the part of many competitors.
Mortgage guaranty premium income trends reflect greater sales opportunities
arising from strong housing and mortgage lending markets, offset in part by a
high level of mortgage refinancing activity and a greater amount of reinsurance
and equivalent premium cessions. High loan refinancing activity tends to reduce
mortgage guaranty insurers' policies in force, and thus renewal premium
production, since previously insured mortgages may no longer require coverage or
may become insured by competitors. In both 2003 and 2002 periods, title
insurance premium and fee revenues reflect a continuation of favorable market
conditions for the sale of new and used homes, and most importantly, strong
mortgage refinancing activity driven by a fairly consistent drop in mortgage
rates during the recent past. Unlike mortgage guaranty insurers, title
companies' premium and fee revenues are enhanced by high levels of refinancing
activity since title searches must be updated and related closing services
provided. Premium volume growth in the Company's smallest segment of life and
health insurance primarily reflects increased sales of travel related products.
Consolidated net investment income of $139.4 million in the first half of 2003
and $70.0 million in the second quarter of 2003 was up slightly when compared to
$134.8 million and $67.7 million, respectively, in the same quarter and six
month period of 2002. The continuation of a lower yield environment partially
offset the benefits of growth in the Company's invested asset base. The average
annualized yield on investments was 4.8% and 5.2% for the six month periods
ended June 30, 2003 and 2002, respectively. Yield trends reflect at once the
relatively short maturity of Old Republic's fixed maturity securities portfolio
and a continuation of the progressively lower yield environment during recent
quarterly periods.
The Company's investment policies have not been designed to maximize realized
investment gains. Pretax realized gains of $12.7 million in the second quarter
of 2003 and $4.4 million in the same period of 2002 include write-downs of zero
and $6.2 million, respectively, of investment securities deemed to have become
other than temporarily impaired at the end of each period. For the first half of
the year, pretax net realized gains amounted to $6.0 million in 2003 and $14.1
million in 2002, inclusive of securities impairment write-downs of $9.5
14
million and $15.3 million, respectively. Dispositions of fixed maturity
securities arise mostly from scheduled maturities and early calls; for the first
six months of 2003 and 2002, 77.7% and 75.4%, respectively, of all such
dispositions resulted from these factors.
Expenses:
The percentage of net benefits, claims, and related settlement expenses measured
against premium and related fee revenues of the Company's operating segments
were as follows:
Quarters Ended Six Months Ended
June 30, June 30,
-------------------------- ---------------------------
2003 2002 2003 2002
------------ ------------ ------------ ------------
<s> <c> <c> <c> <c>
General......................................................... 69.2% 72.2% 69.1% 73.3%
Mortgage Guaranty............................................... 20.0 11.6 17.6 12.1
Title........................................................... 5.6 4.9 5.6 4.8
Life & Health................................................... 40.0 55.8 45.2 54.8
Consolidated................................................ 38.3% 40.0% 37.9% 40.4%
========================== ===========================
The general insurance portion of the claims ratio improved in 2003. The positive
underwriting trends are attributable to the steadily improving pricing and risk
selection standards that have been applied in the past three years, as well as
reduced claim frequency and severity in the latest six month period in most
parts of Old Republic's business. An increase in mortgage guaranty loan default
rates during the second quarter and first half of 2003 led to higher claim cost
provisions. The title insurance ratio, while moderately higher in each 2003
period, remained in the low single digits for each period shown due to a
continuation of favorable trends in claims frequency and severity for business
underwritten since 1992 in particular. Old Republic's life and health benefit
and claims ratio, while reflecting decreases in the current quarter and six
month periods due to reduced benefits and claims costs, can vary widely from
period-to-period due to the relatively small size of this segment's book of
business and the material impact that even a slight change in frequency or
severity of death and health claims can have. The consolidated benefit and claim
ratio reflects the changing effect of period-to-period contributions of each
segment to consolidated results and this ratio's variances within each segment.
Consolidated benefit, claim, and related settlement costs for each of the
Company's business segments are affected by the adequacy of reserves established
for current and prior years' claim occurrences. Such reserves are recorded on a
case by case basis and by means of a large number of formulas and calculations
to cover known as well as incurred but not as yet reported claims at each
balance sheet date. In the aggregate, the Company's claim reserves have not
developed deficiencies for many years. However, claim reserves posted by
insurers such as the Company are necessarily based on a wide variety of
estimates made by a large number of employees and third parties such as
independent claim adjusters and attorneys, can be affected by lagging claim
emergence or reporting delays, and their ultimate disposition is subject to a
multitude of economic, political, judicial and societal factors that cannot be
anticipated or quantified accurately. Accordingly, there can be no guaranty that
such reserves will always be on the mark.
The ratio of consolidated underwriting, acquisition and other operating expenses
to net premiums and fees earned was 47.7% and 47.1% in the first six months of
2003 and 2002, respectively, and 47.4% and 47.2% for the second quarters of 2003
and 2002, respectively. Variations in these consolidated ratios reflect a
continually changing mix of coverages sold and attendant costs of producing
business by the Company's four business segments. The following table sets forth
the expense ratios recorded by each business segment for the periods shown:
Quarters Ended Six Months Ended June 30, June 30,
Quarters Ended Six Months Ended
June 30, June 30,
-------------------------- ---------------------------
2003 2002 2003 2002
------------ ------------ ------------ ------------
<s> <c> <c> <c> <c>
General......................................................... 24.2% 26.5% 24.9% 26.1%
Mortgage Guaranty............................................... 25.7 28.0 25.5 28.2
Title........................................................... 83.0 86.6 84.4 86.7
Life & Health................................................... 57.5 42.1 55.0 44.9
Consolidated................................................ 47.4% 47.2% 47.7% 47.1%
========================== ===========================
Expense ratios for the Company as a whole have remained basically stable for the
periods reported upon. The 2003 general insurance expense ratios reflect the
benefits of firm expense management in the face of a greater revenue base. The
same factor affects the expense ratios for Old Republic's mortgage guaranty and
title insurance segments. The expense ratio for the life and health segment
increased in both 2003 periods principally due to higher expense levels in the
Company's term life and travel related product areas. Consolidated interest and
other corporate charges decreased in both 2003 periods due primarily to reduced
interest costs on a declining debt level.
15
Pretax and Net Income:
Consolidated income before taxes increased by 26.6% in the second quarter of
2003 and 18.3% in the first six months of 2003 when compared to the same periods
one year ago. The following table reflects each segment's contribution to pretax
operating results, excluding the aforementioned realized investment gains or
losses:
Quarters Ended Six Months Ended
June 30, June 30,
---------------------------------------- -----------------------------------------
% %
2003 2002 Change 2003 2002 Change
------------ ------------ ------------ ------------ ------------ -----------
<s> <c> <c> <c> <c> <c> <c>
General.................................. $ 62.4 $ 45.1 38.2% $ 121.8 $ 85.3 42.8%
Mortgage Guaranty........................ 69.8 71.5 -2.3 145.8 141.9 2.8
Title.................................... 36.4 21.3 70.5 62.2 41.5 49.9
Life & Health............................ 1.9 1.7 11.6 3.2 3.3 -3.8
Consolidated......................... $ 166.8 $ 137.3 21.5% $ 327.4 $ 267.7 22.3%
======================================== =========================================
General Insurance Group earnings have improved meaningfully in 2003 by virtue of
better underwriting experience. Mortgage Guaranty Group earnings contributions
have been affected mostly by higher claim costs, driven by increased loan
default rates. Refinancing activity benefitted the Title Insurance Group and led
to greater contributions to consolidated pretax operating earnings in the
current periods.
The effective consolidated income tax rate was 32.3% and 32.2% in the second
quarter and first six months of 2003, respectively, and 24.2% and 27.9% for the
same periods of 2002, respectively. The effective tax rate was reduced and net
earnings were enhanced by tax and related interest recoveries of $10.9 million,
or 9 cents per share in the second quarter of 2002 from the favorable resolution
of tax issues dating back to the Company's 1987 tax return. Otherwise, the rates
for each period reflect primarily the varying proportions of pretax operating
income derived from partially tax-sheltered investment income (principally
tax-exempt interest) on the one hand, and the combination of fully taxable
investment income, realized investments gains or losses, and underwriting and
service income on the other hand.
OTHER INFORMATION
Reference is here made to "Information About Segments of Business" appearing
elsewhere herein.
Historical data pertaining to the operating performance, liquidity, and other
financial matters applicable to an insurance enterprise such as Old Republic are
not necessarily indicative of results to be achieved in succeeding years. In
addition to the factors cited below, the long-term nature of the insurance
business, seasonal and annual patterns in premium production and incidence of
claims, changes in yields obtained on invested assets, changes in government
policies and free markets affecting inflation rates and general economic
conditions, and changes in legal precedents or the application of law affecting
the settlement of disputed claims can have a bearing on period-to-period
comparisons and future operating results.
Some of the statements made in this report, as well as oral statements or
commentaries made by the Company's official in conference calls following
earnings releases, can constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Any
forward-looking statements, commentaries or inferences contained in this report
involve, of necessity, assumptions, uncertainties, and risks that may affect the
Company's future performance. With regard to Old Republic's General Insurance
segment, its results can be affected in particular by the level of market
competition, which is typically a function of available capital and expected
returns on such capital among competitors, the levels of interest and inflation
rates, and periodic changes in claim frequency and severity patterns caused by
natural disasters, weather conditions, accidents, illnesses, work-related
injuries, and unanticipated external events. Mortgage Guaranty and Title
insurance results can be affected by similar factors and most particularly by
changes in national and regional housing demand and values, the availability and
cost of mortgage loans, employment trends, and default rates on mortgage loans;
mortgage guaranty results may also be impacted by various risk-sharing
arrangements with business producers as well as the risk management and pricing
policies of government sponsored enterprises. Life and disability insurance
results can be affected by the levels of employment and consumer spending, as
well as mortality and health trends. At the parent company level, operating
earnings or losses are generally reflective of the amount of debt outstanding
and its cost, as well as interest income on temporary holdings of short-term
investments.
Any forward-looking statements or commentaries speak only as of their dates. Old
Republic undertakes no obligation to publicly update or revise all such
comments, whether as a result of new information, future events or otherwise,
and accordingly they may not be unduly relied upon.
16
OLD REPUBLIC INTERNATIONAL CORPORATION
- --------------------------------------------------------------------------------
Item 3 - Quantitative and Qualitative Disclosure About Market Risk
The information called for by Item 3 is found in the third and fourth unnumbered
paragraphs under the heading "Financial Position" in the "Management Analysis of
Financial Position and Results of Operations" section of this report.
Item 4 - Controls and Procedures
Based on their review and evaluation, conducted as of the end of the period
covered by this report, the Company's Chief Executive Officer and Chief
Financial Officer are of the opinion that the Company's disclosure controls and
procedures are effective, and that there have been no significant changes in
internal controls or other factors that could significantly affect these
disclosure controls and procedures during the quarter. Disclosure controls and
procedures means such controls and procedures as are designed to ensure that
information required to be disclosed by the Company in its reports filed with
the Securities and Exchange Commission is accumulated and communicated to the
aforementioned executives to allow timely decisions regarding required
disclosure.
17
OLD REPUBLIC INTERNATIONAL CORPORATION
FORM 10 - Q
PART II - OTHER INFORMATION
- --------------------------------------------------------------------------------
Item 4 - Submission of Matters to a Vote of Security Holders
(a) The annual meeting of registrant's shareholders was held on May 23,
2003.
(b) Proxies for the meeting were solicited by management pursuant to
Regulation 14A under the Security Exchange Act of 1934. There was no
solicitation in opposition to management's nominees for directors as
listed in the proxy statement and all such nominees were elected.
(c) At the meeting, the shareholders voted on the following matter:
1. The election of four Class I directors. There were at least
80,117,873 affirmative votes for each director and no more than
28,117,633 votes withheld for any single director.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
31.1 Certification by A. C. Zucaro, Chief Executive Officer, pursuant
to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification by John S. Adams, Chief Financial Officer, pursuant
to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification by A. C. Zucaro, Chief Executive Officer, pursuant
to Section 1350, Chapter 63 of Title 18, United States Code, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification by John S. Adams, Chief Financial Officer, pursuant
to Section 1350, Chapter 63 of Title 18, United States Code, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
1. On July 24, 2003, the Company furnished a Current Report on Form 8-K
to incorporate its earnings release dated July 24, 2003 announcing
the results of its operations and its financial condition for the
quarter ended June 30, 2003.
Items other than those listed are omitted because they are not required.
18
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Old Republic International Corporation
--------------------------------------
(Registrant)
Date: August 8, 2003
------------------
/s/ John S. Adams
--------------------------------------
John S. Adams
Senior Vice President &
Chief Financial Officer
19
EXHIBIT INDEX
Exhibit
No. Description
- ----------- -------------
31.1 Certification by A. C. Zucaro, Chief Executive Officer, pursuant to
Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
31.2 Certification by John S. Adams, Chief Financial Officer, pursuant
to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
32.1 Certification by A. C. Zucaro, Chief Executive Officer, pursuant to
Section 1350, Chapter 63 of Title 18, United States Code, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification by John S. Adams, Chief Financial Officer, pursuant
to Section 1350, Chapter 63 of Title 18, United States Code, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
20