October 6, 2006
Mr. Jim B. Rosenberg
Senior Assistant Chief Accountant
United States Securities and Exchange Commission
Mail Stop 03-09
Washington, DC 20549
Re: Old Republic International Corporation
Form 10-K, fiscal year ended December 31, 2005
File No. 001-10607
Dear Mr. Rosenberg,
We have reviewed the comments on our above referenced filing in your letter
dated September 8, 2006. Old Republic's response to the Commission's comments is
as follows:
Item 7 - Management Analysis of Financial Condition and Results of Operations,
page 23
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Comment 1 - Reserve for Loss and Loss Adjustment Expenses
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Comment 1 in the Commission's letter refers to prior comment 6 in the May 25,
2006 comment letter and requests that Old Republic clarify its proposed
disclosures regarding the "reasonably likely" expectation of loss reserve
development. The final two paragraphs of our July 7, 2006 response under the
heading, "Volatility of Reserve Estimates and Sensitivity", will be modified to
read as follows:
Volatility of Reserve Estimates and Sensitivity
Loss reserve uncertainty is illustrated by the variability in loss reserve
development presented in the schedule which appears on page 9 under Item 1 of
this Annual Report on Form 10-K. That schedule shows the cumulative loss reserve
development for each of the past ten years through December 31, 2005 for the
general insurance business which comprises the largest portion of Old Republic's
loss and loss adjustment expense reserves at 82.5% of the total. For each of
these ten calendar years, prior accident years' general insurance claim reserves
have developed, as a percentage of the original estimates, within a range of
5.8% unfavorable in 2001 to a 7.2% favorable development in 1996. For the ten
year period the net development has averaged .6% favorable.
On a consolidated basis, over the comparable ten year period, the favorable
prior year loss reserve development has ranged from .9% to 12.9% and averaged
5.5%. Although management does not have a significant business reason for making
projections of likely outcomes of future loss developments, its analysis and
evaluation of Old Republic's existing business mix, current aggregate loss
reserve levels, and loss development patterns suggests the reasonable likelihood
that 2005 year-end loss reserves could ultimately develop within a range of +/-
5%. The most significant factors impacting the potential reserve development for
each of the Company's insurance segments is discussed above. While the Company
has generally experienced favorable loss development for the latest ten year
period on an overall basis, the current analysis of loss development factors and
economic conditions influencing the Company's insurance coverages indicates a
gradual downward trend in favorable development during the most recent three
years. Consequently, management believes that using a 5% potential range of
reserve development provides a reasonable benchmark for a sensitivity analysis
of the Company's reserves as of December 31, 2005.
Comment 2 - Executive Summary
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Cash, Invested Assets, and Shareholders' Equity, page 26
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The Commission's comment regarding the presentation of certain non-GAAP measures
on page 24 of the Annual Report on Form 10-K indicates that further
clarification is required regarding compliance with Item 10(e) of Regulation
S-K. We propose to modify the disclosure following the existing table as
follows:
The table above presents consolidated results in terms of both operating and net
income to highlight the effect of investment gain or loss recognition and
non-recurring items on period-to-period comparisons. Net operating income does
not replace net income per share computed in accordance with U.S. GAAP as a
measure of profitability. The recognition of investment gains or losses can be
highly discretionary and arbitrary due to such factors as the timing of
individual securities sales, recognition of 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 such as the income tax recovery described above, can distort the
comparability of the Company's operating performance from period to period.
Accordingly, management uses the non-GAAP financial measures to further evaluate
current operating performance and believes the use of these measures enhances
the understanding of Old Republic's operations by highlighting the underlying
profitability of the business.
With respect to the table on page 26 of the Annual Report on Form 10-K we agree
to remove disclosure of the per share amounts for cash and invested assets and
shareholders' equity, at cost from future filings.
*****
We trust that the discussion above is responsive to the Commission's comments.
Please feel free to contact me at (312) 762-4229 if you have any comments or
questions.
Very truly yours,
/s/ Karl W. Mueller
Karl W. Mueller
Senior Vice President and Chief Financial Officer
cc: A.C. Zucaro
Chairman and Chief Executive Officer
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