UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended: December 31, 1994
OR
_ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from___________________to____________________
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
Securities registered pursuant to Section 12(b) of the Act:
Share/Par Value Name of each
Outstanding exchange on
Title of each class February 28, 1995 which registered
___________________ _________________ _______________________
5 3/4% Convertible Subordinated
Debentures Due August 15, 2002 $110,000,000 New York Stock Exchange
8 3/4% Series H Cumulative
Preferred Stock 2,192,100 New York Stock Exchange
Common Stock/$1 par value 51,662,452* New York Stock Exchange
(*) Excludes 4,439,267 common shares issued, outstanding and held by an
affiliate, which are classified as treasury stock for financial accounting
purposes only.
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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part Ill of this Form 10-K or any
amendment to this Form 10-K. X
The aggregate market value of the Company's voting Common Stock held by
non-affiliates of the registrant computed by reference to the closing price
at which the stock was quoted as of February 28, 1995 was $1,278,645,687.
Documents incorporated by reference:
The following documents are incorporated by reference into that part of this
Form 10-K designated to the right of the document title.
Title Part
Proxy statement for the 1995 Annual
Meeting of Shareholders III, Items 10, 11, 12 and 13
Exhibits as specified in exhibit
index (page 51) IV, Item 14
_________________________________
There are 53 pages in this report
PART I
Item 1-Business
(a) General Development of Business. Old Republic International Corporation
is a Chicago-based insurance holding company with subsidiaries engaged in the
general (property & liability), title, mortgage guaranty, and life (life &
disability) insurance businesses. In this report, "Old Republic", "the
Corporation", or "the Company" refers to Old Republic International
Corporation and its subsidiaries as the context requires. The aforementioned
insurance segments are organized as the Old Republic General, Title, Mortgage
Guaranty, and Life Groups, and references herein to such groups apply to the
Company's subsidiaries engaged in the respective segments of business.
Financial Information Relating to Segments of Business (a)
The contributions to net revenues, income (loss) before taxes and before
the cumulative effect of accounting changes of each Old Republic segment are
set forth below for the years shown, together with their respective assets at
the end of each year. The information below should be read in conjunction
with the consolidated financial statements, the notes thereto, and the
"Management Analysis of Financial Position and Results of Operations"
appearing elsewhere herein.
($ in Millions)
-----------------------------------------------------
Years Ended December 31,
-----------------------------------------------------
Net Revenues (b) Income(Loss) Before Taxes
-------------------------- -------------------------
1994 1993 1992 1994 1993 1992
-------- -------- -------- ------- ------- --------
General. . . . . . . . . . $1,051.4 $1,058.5 $1,001.8 $ 154.2 $ 124.5 $ 118.7
Title. . . . . . . . . . . 404.7 467.9 412.8 (.2) 32.1 26.9
Mortgage Guaranty. . . . . 158.3 118.6 78.8 78.3 61.3 43.8
Life . . . . . . . . . . . 55.7 49.5 60.0 6.4 6.5 18.9
Other Operations - Net . . .9 1.3 .6 (20.6) (21.4) (20.5)
-------- -------- -------- ------- ------- --------
Subtotal . . . . . . . . . 1,671.2 1,696.0 1,554.2 218.1 203.0 187.9
Realized Investment Gains. 7.7 40.2 62.8 7.7 40.2 62.8
-------- -------- -------- ------- ------- --------
Total. . . . . . . . . . . $1,679.0 $1,736.3 $1,617.0 $ 225.8 $ 243.3 $ 250.7
======== ======== ======== ======= ======= ========
Assets at December 31,
----------------------------
1994(c) 1993(c) 1992
-------- -------- --------
General. . . . . . . . . . . . . . . . . . . . . . . . $5,199.9 $5,075.1 $3,292.1
Title. . . . . . . . . . . . . . . . . . . . . . . . . 402.4 402.7 373.3
Mortgage Guaranty. . . . . . . . . . . . . . . . . . . 487.8 408.3 288.0
Life . . . . . . . . . . . . . . . . . . . . . . . . . 322.7 336.8 292.6
-------- -------- --------
Total. . . . . . . . . . . . . . . . . . . . . . . . . $6,262.9 $6,098.3 $4,141.6
======== ======== ========
----------
(a)Reference is made to the table in Note 7 of the Notes to Consolidated Financial Statements,
incorporated herein by reference, which shows the contribution of each subcategory to
consolidated net revenues and income or loss before income taxes of Old Republic's insurance
industry segments.
(b)Revenues consist of net premiums, fees, net investment and other income earned; realized
investment gains are shown in total for all groups combined.
(c)See Item 6 - Selected Financial Data, note (b)
General Insurance Group
Through its General Insurance Group subsidiaries, the Corporation assumes
risks and performs related risk management and marketing services pertaining
to a large variety of property and liability commercial insurance coverages.
Old Republic does not have a meaningful participation in personal lines of
insurance.
Liability Coverages: Workers' compensation, general liability (including
the general liability portion of commercial package policies), and commercial
automobile full coverage protection are the major classes of insurance
underwritten for businesses and public entities such as municipalities.
Within these classes of insurance, Old Republic specializes in a number of
industries, most prominently the transportation, coal and energy services,
construction and forest product industries. Such business is primarily
produced through agency and brokerage channels.
The rates charged for all workers' compensation insurance are generally
regulated by the various states. It is therefore possible that the rate
increases necessary to cover any expansion of benefits under state laws or
increases in claim frequency or severity may not always be granted soon
enough to enable insurers to fully recover the amount of the benefits they
must pay.
During the past ten years, the Corporation has steadily diversified its
General Insurance Group business. This diversification has been achieved
through a combination of internal growth, the establishment of new
subsidiaries, and through selective mergers with other companies. For 1994,
production of direct workers' compensation premiums accounted for 33.1% of
consolidated direct premiums written by the General Insurance Group. For the
same year, general liability and commercial automobile (principally trucking)
direct insurance premiums amounted to 11.2% and 33.9%, respectively, of
consolidated direct premiums written.
During the past decade, specialty programs have also been expanded or
initiated to insure corporations' exposures to directors' and officers' and
errors and omissions liability, to cover owners and operators of private
aircraft for hull and liability exposures, and to insure grain elevators and
LPG gas operations.
The Corporation assumes (on both treaty and facultative bases) a moderate
amount of reinsurance business underwritten by other insurance or reinsurance
companies. Most of this business encompasses workers' compensation, general
and automobile liability lines, as well as a moderate amount of property
exposures.
Property and Other Coverages: Old Republic's property insurance business
includes physical damage insurance on commercial automobile and trucking
risks. A small volume of business is represented by fire and other physical
perils for houses and commercial properties. All such insurance is produced
through agents or financial intermediaries, such as finance companies, and on
a reinsurance assumed basis.
Fidelity and surety coverages are underwritten through agents by the Old
Republic Surety Group, Inc.
Old Republic Insured Credit Services, Inc., a wholly-owned subsidiary, has
marketed loan and retail installment sales credit guaranty insurance since
1955 through commercial banks and thrift institutions. This coverage provides
lenders with a guaranty against defaults on home equity and home improvement
loans and installment sales contracts.
Auto Warranty and Home Warranty, while still relatively small businesses,
are marketed directly by Old Republic through its own employees.
Title Insurance Group
The title insurance business consists primarily of the issuance of
policies to real estate purchasers and investors based upon searches of the
public records which contain information concerning interests in real
property. The policy insures against losses arising out of defects, liens and
encumbrances affecting the insured title and not excluded or excepted from
the coverage of the policy.
There are two basic types of title insurance policies: lenders' policies
and owners' policies. Both are issued for a onetime premium. Most mortgages
made in the United States are extended by savings and loan associations,
mortgage bankers, savings and commercial banks, state and federal agencies,
and life insurance companies. The financial institutions secure title
insurance policies to protect their mortgagees' interest in the real
property. This protection remains in effect for as long as the mortgagee has
an interest in the property. A separate title insurance policy is issued
to the owner of the real estate. An owner's policy of title insurance
protects an owner's interest in the title to the property.
The premiums charged for the issuance of title insurance policies vary
with the policy amount and the type of policy issued. The premium is
collected in full when the real estate transaction is closed, there being no
recurring fee thereafter. In many areas, premiums charged on subsequent
policies on the same land may be reduced, depending generally upon the time
elapsed between issuance of the previous policies and the nature of the
transactions for which the policies are issued. Most of the charge to the
consumer relates to title services rendered in conjunction with the
issuance of a policy rather than to the possibility of loss due to risks
insured against. Accordingly, the service performed by a title insurer
relates for the most part to the prevention of loss rather than to the
assumption of the risk of loss.
In connection with its title insurance operations, the Corporation also
provides escrow facilities, services for the disbursement of construction
funds, and other services pertaining to real estate transfers.
Mortgage Guaranty Group
Real estate mortgage loan insurance protects lending institutions against
certain losses, generally to the extent of 10% to 30% of the sum of the
outstanding amount of each insured mortgage loan, and allowable costs
incurred in the event of default by the borrower. The Corporation insures
only first mortgage loans, primarily on residential properties having
one-to-four family dwelling units.
Mortgage Guaranty Insurance premiums originate from savings and loan
associations, mortgage bankers and other lending institutions. The
Corporation's residential real estate loan insurance business is originated,
approximately 19% by savings and loan associations, 71% by commercial bankers
and the remaining 10% through other lenders. Increased failures of savings
and loan associations and other types of lending institutions have not had
and should not have a bearing on the mortgage guaranty or other coverages in
the Corporation's business since the profitability of its insurance products
is not tied to any significant degree to the financial well-being of these
institutions. While it is possible that the failure of a large number of
such institutions could increase the competition for sales of certain
insurance products to the surviving institutions, it is also likely that
other institutions or providers of financial services would emerge to take
their place. The Corporation's mortgage guaranty insurance in force at
December 31, 1994, was originally produced by approximately 3,200 different
lending institutions and about 1,900 such institutions originated business in
1994.
Annual, monthly and single premium plans for residential real estate loan
insurance are offered. Annual plans provide coverage on a year to year basis
with first year premiums being dependent on the loan-to-value ratio and the
coverage offered. Annual renewal premiums are charged on the basis of the
outstanding loan balance on the anniversary date, or, if selected, on the
original loan balance. Monthly plans provide coverage on a month-to-month
basis with premiums being dependent on the loan-to-value ratio and the
coverage offered. In the case of monthly premium plans, the first month and
all renewal months are charged on the basis of the outstanding loan amount on
the anniversary date or, if selected, on the original loan balance. Single
premium plans provide coverage for a period of three to fifteen years, or the
number of years required to amortize a standard mortgage to an 80%
loan-to-value ratio, if selected. The premium charged similarly depends on
the loan-to-value ratio, the coverage offered, the type of loan instrument
(whether fixed rate/fixed payment or an adjustable mortgage loan) and whether
the property is to be owner occupied. Approximately 85% of the residential
real estate loan insurance in force at December 31, 1994, has been written
under annual premium plans. However, the monthly premium plan, a new product
that was introduced last year, accounted for approximately 42% of the new
business written in 1994.
The Corporation limits its residential real estate insurance to lenders
approved by it and supervised or regulated by federal or state authorities in
order to obtain reasonable assurance as to the effectiveness of such
institutions' lending practices. A master policy is issued to each approved
lender, but the master policy does not obligate the Corporation to issue
insurance on any particular loan. To obtain insurance on a specific mortgage
loan, an approved lender submits an application, supported by a copy of the
borrower's loan application, an appraisal report on the property by either
the lender or an independent appraiser, a written credit report on the
borrower, an affidavit of the borrower's equity and certain other
information. The underwriting department reviews this material and approves
or rejects the application, usually on the day it is received. The
Corporation generally adheres to the underwriting guidelines published by the
Federal Home Loan Mortgage Corporation. Upon approval of an application for
insurance of a loan, the Corporation issues a commitment to insure the loan;
this is followed by a certificate of insurance when the loan is consummated.
Life Insurance Group
Credit & Other Life and Disability: Old Republic markets and writes
consumer credit life and disability insurance primarily through consumer
finance companies, banks, savings and loan associations and automobile
dealers. Approximately one-half of the borrowers insured under consumer
credit life insurance are also covered by consumer credit disability
protection. Credit life insurance provides for the repayment of a loan,
installment purchase, or other debt obligation in the event of the death of
the borrower, while credit disability insurance provides for the payment of
installments due on such debt while the borrower is disabled.
Old Republic has written various conventional life, disability/accident
and health insurance coverages for many years, principally on a direct
marketing basis through banks and other financial services institutions.
Ordinary term life insurance is sold through independent agents and brokers
for relatively large face amounts, in both the United States and Canada.
Marketing of term life insurance products is aimed principally toward
self-employed individuals, professionals, and owners of small businesses.
Annuities: In the past, Old Republic marketed annuity policies, some of
which remain outstanding, through securities dealers in New York State. These
policies provide for annuity benefits based on premiums paid and accumulating
with interest over time. Since 1985, the volume of annuity business has been
inconsequential because the Corporation has been unwilling to invest in
so-called "junk bonds" or illiquid investments to help assure higher, more
competitive guaranteed rates.
Consolidated Underwriting Statistics
The following table reflects underwriting statistics covering: 1) premiums
together with loss, expense, and policyholders' dividend ratios for the major
coverages underwritten solely in the General, Title, and Mortgage Guaranty
insurance groups, and disability/accident & health coverages underwritten
directly or through reinsurance in both the Life and General Insurance
groups; 2) a summary of net retained life insurance in force at the end of
the years shown:
--------------------------------------------------------------------------------
($ in Millions)
-----------------------------------
Years Ended December 31,
-----------------------------------
1994 1993 1992
--------- --------- ---------
General Insurance Group:
Overall Experience:
Net Premiums Written. . . . . . . . . . . . $ 851.6 $ 876.7 $ 799.8
Net Premiums Earned (a) . . . . . . . . . . $ 860.6 $ 866.3 $ 806.2
Loss Ratio. . . . . . . . . . . . . . . . . 76% 81% 76%
Policyholders' Dividend Ratio . . . . . . . 1% (1)% 5%
Expense Ratio(a). . . . . . . . . . . . . . 26% 26% 27%
--------- --------- ---------
Composite Ratio . . . . . . . . . . . . . . 103% 106% 108%
========= ========= =========
Experience by Major Coverages:
Workers' Compensation:
Net Premiums Earned (a) . . . . . . . . . . $ 239.4 $ 271.1 $ 261.2
Loss Ratio. . . . . . . . . . . . . . . . . 81% 96% 79%
Policyholders' Dividend Ratio . . . . . . . 4% (2)% 16%
========= ========= =========
Commercial Automobile (Principally trucking):
Net Premiums Earned (a) . . . . . . . . . . $ 321.2 $ 284.1 $ 251.5
Loss Ratio. . . . . . . . . . . . . . . . . 82% 77% 75%
========= ========= =========
General Liability:
Net Premiums Earned (a) . . . . . . . . . . $ 54.2 $ 54.0 $ 51.0
Loss Ratio. . . . . . . . . . . . . . . . . 84% 80% 79%
========= ========= =========
Property and Other Coverages:
Net Premiums Earned (a) . . . . . . . . . . $ 245.7 $ 257.3 $ 242.6
Loss Ratio. . . . . . . . . . . . . . . . . 62% 69% 74%
========= ========= =========
Title Insurance Group:(b)
Net Premiums Earned . . . . . . . . . . . . $ 244.4 $ 249.6 $ 206.1
Combined Net Premiums & Fees Earned . . . . $ 384.7 $ 449.4 $ 394.5
Loss Ratio:To Net Premiums Earned . . . . . 18% 26% 30%
:To Net Premiums & Fees Earned. . . 12% 15% 16%
========= ========= =========
Mortgage Guaranty Group:
Net Premiums Earned (b) . . . . . . . . . . $ 134.5 $ 96.8 $ 61.6
Loss Ratio (a) . . . . . . . . . . . . . . 28% 26% 23%
========= ========= =========
Disability/Accident & Health (c):
Net Premiums Earned . . . . . . . . . . . . $ 28.5 $ 20.6 $ 19.7
Loss Ratio. . . . . . . . . . . . . . . . . 46% 59% 45%
========= ========= =========
Net Retained Life Insurance In Force:
Ordinary Life . . . . . . . . . . . . . . . $ 4,230.0 $ 4,046.7 $ 3,188.8
Credit and Other Life . . . . . . . . . . . 193.3 239.8 326.5
--------- --------- ---------
Total . . . . . . . . . . . . . . . . . . $ 4,423.4 $ 4,286.7 $ 3,515.5
========= ========= =========
---------
(a)Statutory net premiums earned and expense ratios may vary from amounts calculated
pursuant to generally accepted accounting principles due to differences in the
calculation of unearned premium reserves and acquisition cost under each accounting
method.
(b)Amounts and ratios reported are determined pursuant to generally accepted accounting
principles.
(c)Disability/accident & health data reflect the composite experience of the Life and
General Insurance segments of business. Accordingly, the General Insurance Group
composite experience includes premiums and related costs for disability/accident &
health coverages underwritten directly or through reinsurance in such group.
Variations in the loss (including related claim settlement expense) ratios
are caused by changes in the frequency and severity of claims incurred,
changes in premium rates and the level of premium refunds, and periodic
changes in claim and claim expense reserve estimates resulting from ongoing
reevaluations of reported and unreported claims and claim expenses. Loss,
expense, policyholders' dividends, and composite ratios have been rounded to
the nearest percentage point. The loss ratios include loss adjustment
expenses where appropriate. Policyholders' dividends are a reflection of
changes in loss experience for individual or groups of policies, rather than
overall results, and should be viewed in conjunction with loss ratio trends;
policyholders' dividends apply principally to workers' compensation
insurance.
General Insurance Group loss ratios for workers' compensation and
liability insurance coverages in particular may fluctuate due to a variety of
factors. The inherent volatility of claims experience due to chance events in
any one year, greater loss costs emanating from involuntary business (i.e.
from industry-wide insurance pools and associations in which participation is
basically mandatory), and added provisions for loss costs not recoverable
from assuming reinsurers which have experienced financial difficulties are
some of the major factors influencing comparisons of loss ratios between
years. The Company generally underwrites concurrently workers' compensation,
commercial automobile (liability and physical damage), and general liability
insurance coverages for a large number of customers. Accordingly, an
evaluation of trends in premiums, loss and dividend ratios for these
coverages should take such concurrent underwriting assumptions into account.
The Title Insurance Group loss ratios for the years presented are
relatively the same as there has been no material change in frequency and
severity trends in the last three years. In 1993 and 1992, however,
additional claim provisions of $13.3 million and $15.0 million, respectively,
covering various escrow losses in process of final settlement increased the
loss ratio compared to premiums and fees earned by 3% and 4%, respectively.
The increase in the mortgage guaranty loss ratio is due to an increase in
claim frequency, mostly in the California market which has been affected by
an economic slowdown for the past several years.
The increases in net ordinary life insurance in force, is attributed to
the introduction beginning in 1990 of more favorably priced life products
that have received greater market acceptance.
General Insurance Claim Reserves
The Corporation's property and liability insurance subsidiaries establish
claim reserves which consist of estimates to settle: a) reported claims; b)
claims which have been incurred as of each balance sheet date but have not as
yet been reported ("IBNR") to the insurance subsidiaries; and c) the direct
costs, (such as attorneys' fees which are allocable to individual claims) and
indirect costs (such as salaries and rent applicable to the overall
administration of the claim department) to administer known and IBNR claims.
Such claim reserves, except as to classification in the Consolidated Balance
Sheets as of December 31, 1994 and 1993 in terms of gross and reinsured
portions, are reported for financial and regulatory reporting purposes at
amounts that are substantially the same.
The establishment of claim reserves by property and liability insurers,
such as the Corporation's General Insurance Group, is a reasonably complex
and dynamic process influenced by a large variety of factors. These include
past experience applicable to the anticipated costs of various types of
claims, continually evolving and changing legal theories emanating from the
judicial system, actuarial studies, the professional experience and expertise
of the Company's claim departments' personnel or attorneys and independent
adjusters retained to handle individual claims, the effect of inflationary
trends on future claim settlement costs, and periodic changes in claim
frequency patterns such as those caused by natural disasters, illnesses,
accidents, or work-related injuries. Consequently, the reserve-setting
process relies on the judgments and opinions of a large number of persons, on
historical precedent and trends, and on expectations as to future
developments. At any point in time, the Company and the industry are exposed
to possibly higher than anticipated claim costs due to the aforementioned
factors, the evolution, interpretation, and expansion of tort law, and the
effects of unexpected jury verdicts.
In establishing claim reserves, the possible increase in future loss
settlement costs caused by inflation is considered implicitly, along with the
many other factors cited above. Reserves are generally set to provide for the
ultimate cost of all claims. With regard to workers' compensation reserves,
however, the ultimate cost of long-term disability or pension-type claims is
discounted to present value based on interest rates ranging from 3.5% to 4%.
The Company, where applicable, uses only such discounted reserves in
evaluating the results of its operations, in pricing its products and
settling retrospective and reinsured accounts, in evaluating policy terms and
experience, and for other general business purposes. Solely to comply with
reporting rules mandated by the Securities and Exchange Commission, however,
Old Republic has made statistical studies of applicable workers' compensation
reserves to obtain estimates of the amounts by which claim and claim
adjustment expense reserves, net of reinsurance, have been discounted. These
studies have resulted in estimates of such amounts of approximately $169.1,
$154.3, and $149.1 million, as of December 31, 1994, 1993, and 1992,
respectively. It should be noted, however, that these differences between
discounted and non-discounted (terminal) reserves are, fundamentally, of an
informational nature, and are not indicative of an effect on operating
results for any one or series of years for the above-noted reasons, and for
the effect of retrospective rating and similar plans as discussed under
"Reserves, Reinsurance, and Retrospective Adjustments" elsewhere herein.
The Company believes that its overall reserving practices have been
consistently applied over many years, and that its aggregate net reserves
have resulted in reasonable approximations of the ultimate net costs of
claims incurred. However, no representation is made that ultimate net claim
and related costs will not be greater or lower than previously established
reserves.
The following table shows a reconciliation of consolidated property and
liability beginning and ending claim reserves, and the indicated deficiencies
or redundancies for the years 1984 to 1994. In reviewing this tabular data,
it should be noted that prior periods' loss payment and development trends
may not be repeated in the future due to the large variety of factors
influencing the reserving process outlined herein above. With respect to the
1985 and 1986 data in particular, the indicated deficiency pertains largely
to adverse claim development for reinsurance assumed business which the
Company has de-emphasized since 1986 due to unacceptably high loss ratios.
Further, the reserve redundancies or deficiencies shown are not necessarily
indicative of the effect on reported results of any one or series of years
since retrospective premium and commission adjustments employed in various
parts of the Company's business tend to partially or fully offset or negate
such effects. (See "Consolidated Underwriting Statistics" above, and
"Reserves, Reinsurance, and Retrospective Adjustments" elsewhere herein).
The subject of property and liability insurance claim reserves has been
written about and analyzed extensively by a large number of professionals and
regulators. Accordingly, the above discussion summary must, of necessity, be
regarded as a basic outline of the subject and not as a definitive
presentation.
($ in Millions/Percentages to Nearest Whole Point)
--------------------------------------------------------------------------------------------------------------------------
(a) As of December 31: 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
(b) Liability (1) for unpaid claims
and claim adjustment
expenses(2): $630 $743 $974 $1,130 $1,271 $1,335 $1,435 $1,540 $1,573 $1,700 $1,768
====================================================================================
(c) Paid (cumulative) as of (3):
--------------------------------
One year later 11% 25% 17% 18% 22% 21% 22% 25% 20% 19% -%
Two years later 31 34 34 33 35 35 38 37 33 - -
Three years later 35 43 45 43 45 46 46 46 - - -
Four years later 40 52 52 51 53 51 52 - - - -
Five years later 48 56 59 57 57 57 - - - - -
Six years later 52 62 63 61 61 - - - - - -
Seven years later 57 65 66 65 - - - - - - -
Eight years later 62 68 70 - - - - - - - -
Nine years later 64 71 - - - - - - - - -
Ten years later 67% - % - % - % - % - % - % - % - % - % -%
===================================================================================
(d) Liability reestimated (i.e.,
cumulative payments plus
reestimated ending liability)
as of (4):
-----------------------------
One year later 93% 109% 103% 104% 101% 98% 100% 99% 97% 95% -%
Two years later 97 120 111 104 97 99 100 97 94 - -
Three years later 103 117 110 100 98 98 99 96 - - -
Four years later 100 117 106 101 98 98 99 - - - -
Five years later 96 114 108 101 99 99 - - - - -
Six years later 93 116 108 102 99 - - - - - -
Seven years later 94 115 109 103 - - - - - - -
Eight years later 93 117 111 - - - - - - - -
Nine years later 95 118 - - - - - - - - -
Ten years later 97% -% - % - % - % - % - % - % -% - % -%
(e) Redundancy (deficiency)(5):
For each year-end at (a): 3% -18% -11% -3% 1% 1% 1% 4% 6% 5% -%
===================================================================================
Average for all year-ends
at (a): 0.2%
====
----------
(1)Amounts are reported net of reinsurance recoverable. (2) Excluding unallocated loss adjustment expense reserves. (3)
Percent of most recent reestimated liability (line d). Decreases in paid loss percentages may at times reflect the
reassumption by the Company of certain previously ceded loss reserves. (4) Percent of beginning liability (line b) for
unpaid claims and claim adjustment expenses. (5) Most current liability reestimated (line d) as a percent of beginning
liability (line b).
The following table shows an analysis of changes in aggregate reserves for
the Company's property and liability insurance claims and claim adjustment
expenses (1) for each of the years shown.
($ in Millions)
(Years Ended December 31,)
----------------------------
1994 1993 1992
-------- -------- --------
Amount of reserves for unpaid claims and claim adjustment expenses
at the beginning of each year, net of reinsurance losses recoverable. $1,700.8 $1,573.9 $1,540.5
-------- -------- --------
Incurred claims and claim adjustment expenses:
Provisions for insured events of the current year . . . . . . . . . 705.8 721.7 605.2
Change in provision for insured events of prior years . . . . . . . (89.1) (51.6) (20.4)
-------- -------- --------
Total incurred claims and claim adjustment expenses 616.7 670.0 584.8
-------- -------- --------
Payments:
Claims and claim adjustment expenses attributable to insured
events of the current year . . . . . . . . . . . . . . . . . . . . 236.6 246.2 186.0
Claims and claim adjustment expenses attributable to insured
events of prior years. . . . . . . . . . . . . . . . . . . . . . . 312.4 296.9 365.3
-------- -------- --------
Total payments. . . . . . . . . . . . . . . . . . . . . . . . . . 549.0 543.1 551.3
-------- -------- --------
Amount of reserves for unpaid claims and claim adjustment expenses
at the end of each year (2), net of reinsurance losses recoverable 1,768.3 1,700.8 1,573.9
Reinsurance losses recoverable (3) . . . . . . . . . . . . . . . . . . 1,407.4 1,403.0 -
-------- -------- --------
Amount of reserves for unpaid claims and claim adjustment expenses . . $3,175.7 $3,103.8 $1,573.9
======== ======== ========
---------
(1)Excluding unallocated loss adjustment expense reserves.
(2)Reserves for incurred but not reported losses amounted to approximately 30.4%, 30.7% and 28.4% of the totals shown as
of December 31, 1994, 1993 and 1992, respectively.
(3)See Item 6 - Selected Financial Data, note (b).
The data in the two tables above, incorporates the Corporation's estimates
for various environmental impairment and asbestos-related claim or related
costs that have been filed in the normal course of business against a number
of its insurance subsidiaries. Such claims relate primarily to policies
issued prior to 1985, many during a short period between 1981 and 1982
pursuant to an agency agreement canceled in 1982. During all years and
through the current date, the Corporation's insurance subsidiaries have
typically issued general liability insurance policies with face amounts
ranging between $1 million and $2 million and rarely exceeding $10 million.
Such policies have, in turn, been subject to reinsurance cessions which have
typically reduced the Corporation's retentions to $500,000 or less as to
each claim.
The Corporation's reserving methods, particularly as they apply to
formula-based reserves, have been established to cover normal claim
occurrences as well as unusual exposures such as those pertaining to
environmental and asbestosis claims and related costs. At times, however,
the Corporation's insurance subsidiaries also establish specific formula and
other reserves as part of their overall claim and claim expense reserves.
These are intended to cover additional litigation and other costs that are
likely to be incurred to protect the Company's interests in litigated cases
in particular. At December 31, 1994 the Corporation's aggregate reserves
specifically identified with these environmental and asbestosis exposures
amounted to approximately $60.4 million gross, and $37.7 million net of
reinsurance. Through December 31, 1994 the Corporation's historical
indemnity and loss expense payments relative to these exposures have been
negligible in the context of loss and loss expense payments made for all
types of claims.
Old Republic disagrees with the allegations of liability on virtually all
environmental and asbestos-related claims of which it has knowledge on the
grounds that exclusions in the policies preclude coverage for nearly all such
claims, and that the Corporation never intended to assume such risks. Old
Republic's exposure on such claims cannot therefore be calculated by
conventional insurance reserving methods for this and a variety of reasons,
including: a) the absence of statistically valid data inasmuch as such
claims typically involve long reporting delays and very often uncertainty as
to the number and identity of insureds against whom such claims have arisen
or will arise; and b) the litigation history of such or similar claims for
other insurance industry members that has produced court decisions that have
been inconsistent with regard to such issues as when the alleged loss
occurred, which policies provide coverage, how a loss is to be allocated
among potentially responsible insureds and/or their insurance carriers, how
policy coverage exclusions are to be interpreted, what types of environmental
impairment or toxic tort claims are covered, when the insurer's duty to
defend is triggered, how policy limits are to be calculated, and whether
clean-up costs constitute property damage.
Insurance industry associations, individual insurance companies, and
others who have evaluated the potential costs of litigating and settling
environmental and asbestos-type claims have noted with increasing concern the
probability that resolution of such claims, by applying liability
retroactively in the context of the existing insurance system, would likely
bankrupt or undermine seriously the financial condition of the property and
liability insurance industry. In the light of this substantial public policy
issue, the Corporation is of the view that the courts will not resolve in the
near future the litigation gridlock stemming from the non-resolution to date
of many environmental and asbestos-related claims. In recent times the
Executive Branch and/or the United States Congress have proposed changes in
the legislation and rules affecting these types of claims. As of December
31, 1994, however, there is no solid evidence suggesting that forthcoming
changes might mitigate or reduce some or all of these claims.
Because of all these issues and uncertainties, estimation of reserves for
losses and allocated loss adjustment expenses for the above noted types of
claims is extremely difficult or impossible. Accordingly, no representation
can be made that the Corporation's reserves for such claims and related costs
will not prove to be overstated or understated in the future.
(b) Investments. In common with other insurance organizations, Old Republic
invests most funds provided by operations in income-producing investment
securities and bank deposits.
All investments must comply with applicable insurance laws and regulations
which prescribe the nature, form, quality, and relative amounts of
investments which may be made by insurance companies. Generally, these laws
and regulations permit insurance companies to invest within varying
limitations in state, municipal and federal government obligations, corporate
obligations, preferred and common stocks, certain types of real estate, and
first mortgage loans. Old Republic's investment policies are also influenced
by the terms of the insurance coverages written, by its expectations as to
the timing of claim and benefit payments, and by income tax considerations.
The following tables show invested assets at the end of the last three years,
together with investment income for such years.
Consolidated Investments
($ in Millions)
(December 31)
------------------------------------------------------------------------------------
1994 1993 1992
--------- --------- ---------
Held to Maturity (a)
--------------------
Fixed Maturity Securities:
Taxable Bonds and Notes . . . . . . . . . . . $ 2,275.6 $ 2,231.6 $ 2,623.0
Tax-Exempt Bonds and Notes. . . . . . . . . . 450.7 276.9 218.0
Redeemable Preferred Stocks . . . . . . . . . .8 1.2 5.2
--------- --------- ---------
2,727.2 2,509.8 2,846.3
--------- --------- ---------
Other Invested Assets:
Mortgage Loans. . . . . . . . . . . . . . . . 14.0 17.0 17.2
Policy Loans. . . . . . . . . . . . . . . . . 2.1 2.1 2.1
Collateral Loans. . . . . . . . . . . . . . . .4 .5 .7
Sundry. . . . . . . . . . . . . . . . . . . . 10.7 - -
--------- --------- ---------
27.3 19.8 20.2
--------- --------- ---------
2,754.6 2,529.6 2,866.5
--------- --------- ---------
Available for Sale (a)
----------------------
Taxable Bonds and Notes (b) . . . . . . . . . 620.3 642.4 -
Equity Securities:
Perpetual Preferred Stocks. . . . . . . . . 4.5 3.8 .3
Common Stocks . . . . . . . . . . . . . . . 259.2 188.0 125.5
--------- --------- ---------
884.1 834.3 125.9
Short-term Investments. . . . . . . . . . . . 172.1 254.3 238.3
--------- --------- ---------
1,056.2 1,088.7 364.2
--------- --------- ---------
Total Investments. . . . . . . . . . . . . . . $ 3,810.8 $ 3,618.4 $ 3,230.8
========= ========= =========
----------
(a)As indicated in note 1(c) of the Notes to Consolidated Financial Statements, during
1993 the Company reexamined the classification of its invested assets. 1992 data has
not been reclassified similarly.
(b)Consists of U.S. Government bonds and notes and convertible bonds.
--------------------------------------------------------------------------------------
Sources of Consolidated Investment Income
($ in Millions)
(Years Ended December 31)
--------------------------------------------------------------------------------------
1994 1993 1992
--------- --------- ---------
Fixed Maturity Securities:
Taxable . . . . . . . . . . . . . . . . . . . $ 189.6 $ 192.6 $ 190.0
Tax-Exempt. . . . . . . . . . . . . . . . . . 18.6 12.5 14.8
Redeemable Preferred Stocks . . . . . . . . . - - .4
--------- --------- ---------
208.2 205.2 205.3
--------- --------- ---------
Equity Securities:
Perpetual Preferred Stocks. . . . . . . . . . .5 .2 -
Common Stocks . . . . . . . . . . . . . . . . 7.0 4.7 2.7
--------- --------- ---------
7.5 5.0 2.7
--------- --------- ---------
Other Investment Income:
Interest on Short-term Investments. . . . . . 9.7 8.7 9.8
Sundry. . . . . . . . . . . . . . . . . . . . 7.9 7.0 8.8
--------- --------- ---------
17.7 15.7 18.6
--------- --------- ---------
Gross Investment Income. . . . . . . . . . . . 233.6 226.0 226.7
Less: Investment Expenses (a) . . . . . . . . 6.0 5.2 5.1
--------- --------- ---------
Net Investment Income. . . . . . . . . . . . . $ 227.5 $ 220.7 $ 221.5
========= ========= =========
----------
(a)Investment expenses include interest expense of approximately $0.7 in 1994, $0.7 in
1993 and $1.0 in 1992, relating to reinsurance agreements and retrospective premium
adjustment contracts of insurance subsidiaries. Substantially all other expenses consist
of salaries and investment service fees.
For at least the past 25 years, Old Republic's investment policy has been
to acquire and retain primarily investment grade, publicly traded, fixed
maturity securities. Accordingly, the Corporation's exposure to so-called
"junk bonds", private placements, real estate, mortgage loans, and
derivatives is immaterial or non-existent. Management considers
investment-grade securities to be those rated by Standard & Poor's
Corporation ("Standard & Poor's") or Moody's Investors Service, Inc.
("Moody's") that fall within the top four rating categories or securities
which are not rated but have characteristics similar to securities so rated.
At December 31, 1994 and December 31, 1993, total investments in default as
to principal and/or interest amounted to less than 1% of consolidated assets.
The Company's investment policies are not designed to encourage trading of
its securities or to maximize the realization of investment gains. While the
amount of portfolio turnover varies from year to year, dispositions of
portfolio investments held to maturity are generally caused by: 1) calls
prior to maturity by issuers; and 2) the Company's ongoing process of
monitoring its investments with a view toward maximizing the quality ratings
and diversification of its portfolio.
Effective January 1, 1993, the Company reevaluated the classification of
its invested assets as to those it (1) has the intent and ability to hold
until maturity (generally carried at amortized costs for fixed-maturity
securities), (2) has available for sale (carried at fair value with
adjustments to equity) or (3) has the intention of trading (carried at fair
value with adjustments to income). As a result, the Company's invested
assets have been reclassified as either "held to maturity" or "available for
sale" as of December 31, 1994 and 1993.
The independent credit quality ratings and maturity distribution for Old
Republic's consolidated fixed maturity investments, excluding short-term
investments, at December 31, 1994 and December 31, 1993, are shown in the
following tables. These investments, $3.3 billion and $3.1 billion at
December 31, 1994 and 1993, respectively, represented approximately 53% and
52%, respectively, of consolidated assets, and 69% and 66%, respectively, of
consolidated liabilities as of such dates.
-----------------------------------------------------------------------------------------------
Independent Ratings (a)
-----------------------------------------------------------------------------------------------
December 31,
------------------------------
1994 1993
---------- ----------
(% of total portfolio)
Aaa. . . . . . . . . . . . . . . . . . . . . . . . . . . 30.1% 30.2%
Aa . . . . . . . . . . . . . . . . . . . . . . . . . . . 28.8 26.9
A. . . . . . . . . . . . . . . . . . . . . . . . . . . . 33.1 33.8
Baa. . . . . . . . . . . . . . . . . . . . . . . . . . . 6.9 8.2
---------- ----------
Total investment grade. . . . . . . . . . . . . . . . . 98.9 99.1
All others (b) . . . . . . . . . . . . . . . . . . . . . 1.1 .9
---------- ----------
Total.. . . . . . . . . . . . . . . . . . . . . . . . . 100.0% 100.0%
========== ==========
(a)Ratings are assigned primarily by Moody's with remaining ratings assigned by Standard &
Poor's and converted to the equivalent Moody's rating.
(b)"All others" include securities which when purchased were investment grade, non-investment
grade or non-rated convertible securities, and other non-rated securities such as small
issues of tax exempt bonds.
------------------------------------------------------------------------------------------
Maturity Distribution
-----------------------------------------------------------------------------------------------
December 31,
-------------------------------
1994 1993
---------- ----------
(% of total portfolio)
Due in one year or less. . . . . . . . . . . . . . . . . 5.2% 4.4%
Due after one year through five years. . . . . . . . . . 42.0 37.5
Due after five years through ten years . . . . . . . . . 50.1 55.9
Due after ten years through fifteen years. . . . . . . . 1.4 .9
Due after fifteen years. . . . . . . . . . . . . . . . . 1.3 1.3
--------- ---------
100.0% 100.0%
========= =========
Average life (years) . . . . . . . . . . . . . . . . . . 5.1 5.3
========= =========
-----------------------------------------------------------------------------------------------
(c) Marketing. Workers' compensation, general liability and commercial
automobile insurance underwritten for larger commercial enterprises and
public entities is marketed primarily through independent insurance agents
and brokers with the assistance of Old Republic's trained sales,
underwriting, actuarial, and loss control personnel. The remaining property
and liability commercial insurance written by Old Republic is obtained
through insurance agents or brokers who are independent contractors and
generally represent other insurance companies, by direct sales, and through
marketing and underwriting joint ventures.
A small portion of Old Republic's consolidated insurance premium volume,
particularly in its General and Life Insurance Groups, is produced by the
mass marketing of specially designed insurance products through
consumer-oriented businesses such as consumer finance companies, banks,
savings and loan associations, mortgage bankers, automobile dealers, and
consumer products dealers. The Corporation has designed ancillary products,
such as credit disability, joint life, loan credit guaranty insurance, and
property insurance on loan collateral, for sale through the same sources as
its other products. Through the combination of these marketing channels, Old
Republic is afforded access to large volume markets without having to invest
large sums for mailing, advertising, and other acquisition expenses, or for
establishing and administering a large sales organization. No single source
accounted for over 10% of Old Republic's premium volume in 1994.
A substantial portion of the Company's title insurance business is
referred to it by title insurance agents, builders, lending institutions,
real estate developers, realtors, and lawyers. Title insurance is sold
through 217 Company offices located in 29 states and through agencies and
underwritten title companies in the District of Columbia and all states
except Iowa and Oregon. The issuing agents are authorized to issue binders
and title insurance policies based on their own search and examination, or on
the basis of abstracts and opinions of approved attorneys. Policies are also
issued through independent abstract companies (not themselves title insurers)
pursuant to underwriting agreements. These agreements generally provide that
the underwritten company may cause title policies of the Company to be
issued, and the latter is responsible under such policies for any payments to
the insured. Typically, the agency or underwritten title company deducts the
major portion of the title insurance charge to the consumer as its commission
and for the services. During 1994, approximately 54% of title insurance
premiums and fees was accounted for by policies issued by agents and
underwritten title companies.
Existing differences in various parts of the country with respect to the
acceptance and use of title insurance in real estate sales and loan
transactions have a material effect on title insurance growth and operations
in the areas concerned. In the Western states and certain urban areas of the
East and Midwest, title insurance is widely accepted, with the result that
the potential volume of title insurance premium income is large in relation
to the volume of real estate activity in those areas. In some other parts of
the country, title insurance is not as generally used, particularly in
transactions involving residential real estate. Consequently, in those areas,
the growth of title insurance depends not only upon market share of the title
insurance business within the industry, but also upon the increased use of
title insurance in real estate transactions. The volume of real estate
activity is also affected by the availability and cost of financing,
population growth, family movements and other factors. Also, the title
insurance business is seasonal. During the winter months, new building
activity is reduced and, accordingly, the Company does less title insurance
business relative to new construction during such months than during the rest
of the year. The most important factor, insofar as Old Republic's title
business is concerned, however, is the rate of activity in the resale market
for residential properties.
Mortgage guaranty insurance is marketed primarily through a direct sales
force which calls on savings and loan associations, other lending
institutions, and mortgage bankers. No sales commissions or other forms of
remuneration are paid to the lending institutions and others for the
procurement or development of business.
The personal contacts, relationships, and reputations of Old Republic's
key executives are a vital element in obtaining and retaining business. Many
of the Company's customers produce large amounts of premiums and therefore
warrant substantial levels of top executive attention and involvement. In
this respect, Old Republic's mode of operation is similar to that of
professional reinsurers and commercial insurance brokers, and relies on the
marketing, underwriting, and management skills of relatively few key people.
Several types of insurance coverages underwritten by Old Republic, such as
credit life and disability, loan credit guaranty, title, and mortgage
guaranty insurance, are affected in varying degrees by changes in national
economic conditions. During periods of economic recession or rising interest
rates, operating and/or claim costs pertaining to such coverages tend to rise
disproportionately to revenues and generally result in reduced levels of
profitability.
At least one insurance subsidiary of Old Republic is licensed to do
business in each of the 50 states, the District of Columbia, Puerto Rico,
Virgin Islands, Guam, and each of the Canadian provinces; title insurance
operations, however, are licensed to do business in 48 states and the
District of Columbia, while mortgage insurance subsidiaries are licensed in
49 states and the District of Columbia. Consolidated direct premium volume
distributed among the various geographical regions shown was as follows for
the past three years:
---------------------------------------------------------------------------------
Geographical Distribution of Direct Premiums Written
---------------------------------------------------------------------------------
1994 1993 1992
-------- -------- --------
United States:
Northeast . . . . . . . . . . . . . . . . . . . 5.3% 4.7% 4.2%
Mid-Atlantic. . . . . . . . . . . . . . . . . . 10.0 10.6 11.2
Southeast . . . . . . . . . . . . . . . . . . . 16.2 15.5 15.5
Southwest . . . . . . . . . . . . . . . . . . . 14.3 14.1 13.5
East North Central. . . . . . . . . . . . . . . 16.2 14.7 14.7
West North Central. . . . . . . . . . . . . . . 15.2 16.3 16.0
Mountain. . . . . . . . . . . . . . . . . . . . 8.4 8.0 7.3
Western . . . . . . . . . . . . . . . . . . . . 12.5 14.6 15.8
Foreign (Principally Canada) . . . . . . . . . . 1.9 1.5 1.8
-------- -------- --------
Total. . . . . . . . . . . . . . . . . . . . 100.0% 100.0% 100.0%
======== ======== ========
(d) Reserves, Reinsurance, and Retrospective Adjustments. Old Republic's
insurance subsidiaries establish reserves for future policy benefits,
unearned premiums, reported claims, claims incurred but not reported, and
claim adjustment expenses, as required in the circumstances. Such reserves
are based on regulatory accounting requirements and generally accepted
accounting principles. In accordance with insurance industry practices, claim
reserves are based on estimates of the amounts that will be paid over a
period of time and changes in such estimates are reflected in the financial
statements when they occur. See "General Insurance Claim Reserves" herein.
To maintain premium production within its capacity and limit maximum
losses and risks for which it might become liable under its policies, Old
Republic, as is the practice in the insurance industry, may cede a portion or
all of its premiums and liabilities on certain classes of insurance or blocks
of business to other insurers and reinsurers. Although the ceding of
insurance does not generally discharge an insurer from its direct liability
to a policyholder, it is industry practice to establish the reinsured part of
risks as the liability of the reinsurer. Old Republic also employs
retrospective premium adjustments, contingent commissions, agency profit and
risk-sharing arrangements, and joint ventures for parts of its business in
order to minimize losses for which it might become liable under its insurance
policies, and to afford its clients or producers a degree of participation in
the risks and rewards associated with such business. Under retrospective
arrangements, Old Republic collects additional premiums if losses are greater
than originally anticipated and refunds a portion of original premiums if
loss costs are lower. Pursuant to contingent commissions, agency profit and
other risk-sharing arrangements, the Company adjusts commissions or premiums
retroactively to likewise reflect deviations from originally expected loss
costs. The amount of premium, commission, or other retroactive adjustments
which may be made is either limited or unlimited depending on the Company's
evaluation of risks and related contractual arrangements. To the extent that
any reinsurance companies, retrospectively rated risks, or producers might be
unable to meet their obligations under existing reinsurance or retrospective
insurance and commission agreements, Old Republic would be liable for the
defaulted amounts. In these regards, however, the Company generally protects
itself by withholding funds, or by otherwise collateralizing reinsurance
obligations through irrevocable letters of credit, cash, and securities.
Old Republic's reinsurance practices with respect to portions of its
business also result from its desire to bring its sponsoring organizations
and clients into some degree of joint venture relationship. The Corporation
may, in exchange for a ceding commission, reinsure up to 100% of the
underwriting risk, and the premium applicable to such risk, to insurers owned
by or affiliated with lending institutions, sponsors whose customers are
insured by Old Republic, or individual clients who have formed "captive"
insurance companies. The ceding commissions received compensate Old Republic
for performing the direct insurer's functions of underwriting, actuarial,
claim settlement, loss control, legal, reinsurance, and administrative
services to comply with local and federal regulations, and for providing
appropriate risk management services.
Remaining portions of Old Republic's business are reinsured with
independent insurance or reinsurance companies under various quota share, and
excess of loss agreements.
Reinsurance protection on property and liability operations generally
limits the net loss on any one risk to a maximum of (in whole dollars): fire
and other physical perils-$300,000; accident and health-$15,000; workers'
compensation-$1,000,000; other liability coverages-$600,000; and loan credit
guaranty-$200,000. Title insurance risk assumptions, based on the title
insurance subsidiaries' financial resources, are limited to a maximum of
$25,000,000 as to any one policy. Substantially all the mortgage guaranty
insurance business is retained, with the exposure on any one risk currently
averaging less than $20,000. The maximum amount of ordinary life insurance
retained on any one life by the Life Insurance Group (without reinsurance) is
$250,000.
(e) Competition. The insurance business is highly competitive and Old
Republic competes with many stock and mutual insurance companies. Many of
these competitors offer more insurance coverages and have substantially
greater financial resources than the Corporation. The rates charged for many
of the insurance coverages in which the Corporation specializes, such as
credit life and disability insurance, workers' compensation insurance, other
property and liability insurance, and title insurance, are primarily
regulated by the states and are also subject to extensive competition among
major insurance organizations. The basic methods of competition available to
Old Republic, aside from rates, are service to customers, expertise in
tailoring insurance programs to the specific needs of its clients, efficiency
and flexibility of operations, personal involvement by its key executives,
and, as to title insurance, accuracy and timely delivery of evidences of
title issued. For certain types of coverages, including loan credit guaranty
and mortgage guaranty insurance, the Company also competes in varying degrees
with the Federal Housing Administration ("FHA") and the Veterans
Administration ("VA"). In these regards, the Corporation's insurance
subsidiaries compete with the FHA and VA by offering different coverages and
by establishing different requirements relative to such factors as interest
rates, closing costs, and loan processing charges. The Corporation believes
its experience and expertise have enabled it to develop a variety of
specialized insurance programs for its customers and to secure state
insurance departments' approval of these programs.
(f) Government Regulation. In common with all insurance companies, the
Corporation's insurance subsidiaries are subject to the regulation and
supervision of the jurisdictions in which they do business. The method of
such regulation varies, but, generally, regulation has been delegated to
state insurance commissioners who are granted broad administrative powers
relating to: the licensing of insurers and their agents; the nature of and
limitations on investments; approval of policy forms; reserve requirements;
and trade practices. In addition to these types of regulation, many classes
of insurance, including most of the Corporation's insurance coverages, are
subject to rate regulations which require that rates be reasonable, adequate,
and not unfairly discriminatory.
The National Association of Insurance Commissioners has promulgated a
model law providing stringent regulation of credit life and disability
insurance which has been adopted in various forms by most states. An
important interpretation of the model law stipulates that a loss ratio below
60% would be construed as producing an excessive premium rate, thereby
indirectly defining the maximum rate that can be charged by an insurer. Some
states now require a substantially higher loss ratio on these coverages.
Although one of the general effects of the model law has been to reduce rates
significantly, in some states where the rates were excessively reduced, Old
Republic has been able in some cases to obtain higher rates by demonstrating
that actual loss ratios incurred have been in excess of a permissible loss
ratio required by regulatory authorities as a condition for obtaining rate
increases.
Credit life and disability insurance practices are further regulated by
the federal "Truth-in-Lending Law" which requires, among other things, that
a borrower be specifically informed of the existence and cost of credit life
and disability insurance, execute a written acknowledgement of his
understanding of such insurance, and give a written order for the insurance
as a condition of his incurring any charge for the coverage.
There have been various proposals from time to time with respect to
additional regulation of credit life and disability insurance which could
have an adverse effect on the consumer credit insurance business. The
financial institutions whose customers are insured by Old Republic are also
regulated by federal and state authorities whose regulations have a direct
effect on certain forms of credit life and disability insurance.
The Federal National Mortgage Association ("FNMA") and the Federal Home
Loan Mortgage Corporation ("FHLMC") have various qualifying requirements for
private mortgage guaranty insurers which write mortgage insurance on loans
acquired by the FNMA and FHLMC from mortgage lenders. These requirements
include a basic standard calling for the maintenance of a ratio of aggregate
insured risk to policyholders' surplus (defined as total statutory capital
and surplus plus statutory contingency reserves) of not more than 25 to 1.
Other qualifying requirements are designed to insure the financial stability
of a private mortgage insurance company by limiting the geographic
concentration of insurance risks, by limiting risks on nonresidential real
estate insurance to 10% of policyholders' surplus, by maintaining 85% of
total admitted assets in marketable securities and other highly liquid
investments, and by maintaining a minimum policyholders' surplus of $5
million.
Most of the Company's savings and loan association customers for mortgage
guaranty insurance are governed by the regulations of the Federal Home Loan
Bank Board. A regulation of that Board prohibits savings and loan
associations from insuring any loan with a mortgage insurance company if
certain relationships exist between such mortgage insurance company and the
savings and loan association. Generally, a savings and loan association may
not obtain insurance from any mortgage insurance company if (1) any
commission, fee or other compensation is paid to the savings and loan
association or any of its officers, directors, employees or affiliates, (2)
a savings account is maintained by the mortgage insurance company with such
savings and loan association, (3) any officer or employee of the mortgage
insurance company or its parent company is a director, officer or controlling
person of the savings and loan association, or (4) either (a) the association
or any director, officer, controlling person or affiliate holds equity
securities of the mortgage insurance company or any parent company thereof
having a cost in excess of $50,000 or representing more than one percent of
any class of equity securities of the company, if its assets are less than
$50 million, or one-half percent, if the assets equal or exceed $50 million,
or (b) the association and all of its directors, officers, controlling
persons or affiliates in the aggregate own equity securities of the mortgage
insurance company having a cost in excess of $100,000, or two percent of a
company the assets of which are less than $50 million, or one percent, if the
assets equal or exceed $50 million.
The majority of states have also enacted insurance holding company laws
which require registration and periodic reporting by insurance companies
controlled by other corporations licensed to transact business within their
respective jurisdictions. Old Republic's insurance subsidiaries are subject
to such legislation and are registered as controlled insurers in those
jurisdictions in which such registration is required. Such legislation varies
from state to state but typically requires periodic disclosure concerning the
corporation which controls the registered insurers, or ultimate holding
company, and all subsidiaries of the ultimate holding company, and prior
approval of certain intercorporate transfers of assets (including payments of
dividends in excess of specified amounts by the insurance subsidiary) within
the holding company system. Each state has established minimum capital and
surplus requirements to conduct an insurance business. All of the Company's
subsidiaries meet or exceed these requirements, which vary from state to
state.
(g) Employees. As of December 31, 1994, Old Republic employed approximately
5,400 persons on a full time basis. Eligible full time employees participate
in various pension plans which provide annuity benefits payable upon
retirement. Eligible employees are also covered by hospitalization and major
medical insurance, group life insurance, and various profit sharing and
deferred compensation plans. The Company considers its employee relations to
be good.
Item 2-Properties
The principal executive offices of the Company are located in the Old
Republic Building in Chicago, Illinois. This Company owned building contains
151,000 square feet of floor space of which approximately 50% is occupied by
Old Republic, and the remainder is leased to others. In addition to the
Company-owned principal executive offices, a subsidiary of the Title
Insurance Group partially occupies its headquarters building. This building
contains 110,000 square feet of floor space of which approximately 62% is
occupied by the Old Republic National Title Insurance Company. The remainder
of the building is leased to others. Nine smaller buildings are owned by Old
Republic and its subsidiaries in various parts of the country and are
primarily used for its business. The carrying value of all buildings and
related land at December 31, 1994 was approximately $12.7 million, and
mortgages thereagainst aggregated $.2 million as of the same date.
Certain other operations of the Company and its subsidiaries are directed
from leased premises. See Note 5(b) of the Notes to Consolidated Financial
Statements for a summary of all material lease obligations.
Item 3-Legal Proceedings
There are no material legal proceedings against the Company other than
those arising in the normal course of business and which generally pertain to
claim matters related to insurance policies and contracts issued by the
Corporation's insurance subsidiaries.
Item 4-Submission of Matters to a Vote of Security Holders
None
Item 4(a)-Executive Officers of the Registrant
Name Age Position
------------------------ --- ----------------------------------
Paul D. Adams 49 Senior Vice President, Chief Financial
Officer since 1990 and Treasurer since
1993.
Anthony F. Colao 67 Senior Vice President, and Director
since 1987.
Spencer LeRoy, III 48 Senior Vice President, General Counsel,
and Secretary since 1992.
William F. Schumann 55 Senior Vice President since 1989.
President since 1974 of Old Republic
Insured Credit Services, Inc., a
wholly-owned subsidiary.
William A. Simpson 53 Senior Vice President/Mortgage
Guaranty, and Director since 1980.
President since 1972 of Republic
Mortgage Insurance Company, a
wholly-owned subsidiary.
A. C. Zucaro 55 Chief Executive Officer, President,
Director and Chairman of the Board
since 1990, 1981, 1976 and 1993,
respectively.
The term of office of each officer of the Company expires on the date of
the annual meeting of the board of directors, which is generally held in May
of each year. There is no family relationship between any of the executive
officers named above. Each of these named officers, except Mr. LeRoy, has
been employed in executive capacities with the Company and/or its
subsidiaries for the past five years.
PART II
Item 5-Market for the Registrant's Common Stock and Related Security Holder
Matters
The Company's common stock is traded on the New York Stock Exchange under
the symbol "ORI". The high and low closing prices as reported on the New
York Stock Exchange, and cash dividends declared for each quarterly period
during the past two years were as follows:
Closing Price Cash
----------------
High Low Dividends
------ ------ ---------
1st quarter 1993 . . . . . . . . . . . . . . . . . $27.00 $24.50 $ .10
2nd quarter 1993 . . . . . . . . . . . . . . . . . 26.13 21.63 .11
3rd quarter 1993 . . . . . . . . . . . . . . . . . 27.38 23.00 .11
4th quarter 1993 . . . . . . . . . . . . . . . . . $25.50 $21.88 $ .11
====== ====== =======
1st quarter 1994 . . . . . . . . . . . . . . . . . $24.38 $22.00 $ .11
2nd quarter 1994 . . . . . . . . . . . . . . . . . 23.38 21.88 .12
3rd quarter 1994 . . . . . . . . . . . . . . . . . 23.00 20.88 .12
4th quarter 1994 . . . . . . . . . . . . . . . . . $21.88 $18.88 $ .12
====== ====== =======
As of January 31, 1995, there were 3,799 registered holders of the
Company's Common Stock. See Notes 4(b) and 4(c) of the Notes to Consolidated
Financial Statements for a description of certain regulatory restrictions on
the payment of dividends by Old Republic's insurance subsidiaries and certain
restrictions under the terms of Old Republic's loan agreements. Closing
prices have been restated, as necessary, to reflect all stock dividends and
splits declared through December 31, 1994.
Item 6-Selected Financial Data
(All amounts, except common share data, are expressed in millions)
(Years Ended December 31)
---------------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ----------
FINANCIAL POSITION:
Cash and Invested Assets (a) $ 3,906.4 $ 3,723.0 $ 3,332.5 $ 2,933.7 $ 2,614.7
Other Assets (b) . . . . 2,356.5 2,375.3 809.1 779.5 713.7
Total Assets . . . . 6,262.9 6,098.3 4,141.6 3,713.2 3,328.5
Liabilities, Other than Debt (b) 4,543.4 4,480.5 2,698.0 2,503.0 2,318.3
Debt and Debt Equivalents 314.7 282.7 277.8 247.6 220.7
Total Liabilities. . 4,858.1 4,763.3 2,975.8 2,750.6 2,539.1
Preferred Stock . . . . . 75.4 78.0 80.8 80.8 24.5
Common Shareholders' Equity 1,329.3 1,256.9 1,084.9 881.7 764.8
Total Capitalization (c) $ 1,719.5 $ 1,617.7 $ 1,443.6 $ 1,210.2 $ 1,010.1
========== ========== ========== ========== ==========
---------------------------------------------------------------------------------------------------
RESULTS OF OPERATIONS:
Net Premiums and Fees Earned $ 1,423.2 $ 1,445.7 $ 1,291.9 $ 1,113.4 $ 1,013.4
Net Investment and Other Income 248.0 250.2 262.3 239.9 228.2
Realized Investment Gains 7.7 40.2 62.8 21.1 1.0
Net Revenues . . . . 1,679.0 1,736.3 1,617.0 1,374.5 1,242.7
Benefits, Claims, Settlement
Expenses and Dividends . 761.2 811.3 752.1 691.8 632.9
Underwriting and Other Expenses 691.9 681.6 614.2 507.3 476.9
Income Taxes (d) . . 73.4 78.0 75.0 45.2 28.9
Income Before Item Below. 151.0 166.4 174.7 131.0 104.6
Accounting Changes (e). . - 8.6 - - -
---------- ---------- ---------- ---------- ----------
Net Income . . . . . $ 151.0 $ 175.1 $ 174.7 $ 131.0 $ 104.6
========== ========== ========== ========== ==========
---------------------------------------------------------------------------------------------------
COMMON SHARE DATA (f):
Net Income:
Primary Earnings (g):
Income Before Item Below $ 2.55 $ 2.83 $ 3.09 $ 2.48 $ 2.02
Accounting Changes . . . - .15 - - -
---------- ---------- ---------- ---------- ----------
Net Income . . . . . $ 2.55 $ 2.98 $ 3.09 $ 2.48 $ 2.02
========== ========== ========== ========== ==========
Fully Diluted Earnings (h):
Income Before Item Below $ 2.44 $ 2.69 $ 2.95 $ 2.36 $ 1.93
Accounting Changes . . . - .14 - - -
---------- ---------- ---------- ---------- ----------
Net Income . . . . . $ 2.44 $ 2.83 $ 2.95 $ 2.36 $ 1.93
========== ========== ========== ========== ==========
Average Common and Equivalent
Shares Outstanding:Primary 57,207,702 57,077,542 54,516,581 52,408,404 51,206,038
Fully Diluted 61,657,490 61,519,432 58,317,906 56,480,042 55,524,178
========== ========== ========== ========== ==========
Dividends:Cash. . . . . . $ .47 $ .43 $ .39 $ .37 $ .34
========== ========== ========== ========== ==========
Stock. . . . . . -% -% 100% 10% 5%
========== ========== ========== ========== ==========
Book Value. . . . . . . . $ 25.79 $ 24.25 $ 21.40 $ 18.81 $ 16.55
========== ========== ========== ========== ==========
Common Shares Outstanding. 51,536,412 51,844,001 50,692,562 46,896,184 46,220,734
========== ========== ========== ========== ==========
---------------------------------------------------------------------------------------------------
See Notes on Following Page
(a)Consists of cash, investments and investment income due and accrued;
(b)As indicated in note 1(g) of the Notes to Consolidated Financial
Statements, the adoption by the Company of certain reporting changes
mandated by accounting regulatory authorities served to increase assets
and liabilities by equal amounts of approximately $1.5 billion at December
31, 1994 and 1993. As permitted, prior years' reports have not been
changed retroactively for these changes which became effective in 1993;
(c)Total capitalization consists of debt and debt equivalents, preferred
stock, and common shareholders'equity;
(d)Income taxes were decreased, and net income correspondingly increased by
$1.9 ($.03 per share) in 1992, $3.6 ($.07 per share) in 1991 and $5.5
($.11 per share) in 1990, as a result of amortized fresh start deferred
income tax credits all of which resulted from changes in tax regulations
effective January 1,1987;
(e)See notes 1(h) and (l) of the Notes to Consolidated Financial Statements
and note (b) above, for an explanation of accounting changes mandated by
accounting regulatory authorities. As permitted, prior year reports have
not been changed retroactively for these changes which became effective in
1993;
(f)Common share data has been retroactively adjusted for all stock dividends
and splits declared through December 31, 1994. Excludes 4,439,267 issued
and outstanding common shares, held by a consolidated affiliate, which are
eliminated in consolidation and in the calculation of outstanding shares
for financial accounting purposes only;
(g)Calculated after deduction of preferred stock dividend requirements of
$5.1 in 1994, $5.2 in 1993, $6.0 in 1992, $1.3 in 1991 and $1.5 in 1990;
(h)Calculated after deduction of preferred stock dividend requirements and
after adjustment for post-tax convertible debentures interest of $.9 in
1994, $1.0 in 1993, $2.6 in 1992, $(1.9) in 1991 and $(2.1) in 1990.
Item 7-Management Analysis of Financial Position and Results of Operations
($ in Millions, Except Share Data)
OVERVIEW
This analysis pertains to the consolidated accounts of Old Republic
International Corporation. The Company conducts its business through four
major segments, namely its General (property and liability coverages), Title,
Mortgage Guaranty, and Life insurance groups.
CHANGES IN ACCOUNTING POLICIES
In 1993, the Company adopted several changes in accounting policies to
comply with Financial Accounting Standards Board (FASB) pronouncements. The
resulting adoption of the asset and liability method for calculating deferred
income taxes and the recognition of present value liabilities pertaining to
post-retirement health benefits under retirement plans maintained by a few
Old Republic subsidiaries increased net income by $8.6 or 15 cents per share
(14 cents fully diluted) in the first quarter of 1993. Accounting for
reinsurance ceded transactions affected the Company's balance sheet but not
the consolidated income statement; assets and liabilities at December 31,
1993, were increased by corresponding amounts of approximately $1,524.2 due
to the reclassification change for these transactions. Finally, the Company
reexamined the classification of its invested assets which led to reporting
such assets as either "held to maturity" or "available for sale"; the effect
of these classification changes was to increase assets and the liability for
deferred taxes by $25.2 and $8.7, respectively, and common shareholders'
equity for the net unrealized appreciation of securities newly reclassified
at fair value by $16.4 or 32 cents per common share as of December 31, 1993.
See Note 1 of the Notes to Consolidated Financial Statements for further
details relating to these changes. As permitted by the pertinent FASB
pronouncements, prior years' financial statements have not been restated nor
reclassified to reflect these changes.
FINANCIAL POSITION
Old Republic's financial position at December 31, 1994 reflected increases
in assets of 2.7%, liabilities of 2.0%, and common shareholders' equity of
5.8% when compared to the immediately preceding year-end. At December 31,
1994 and 1993, cash and invested assets represented 62.4% and 61.0% of
consolidated assets, respectively. Relatively high short-term investment
positions were maintained as of the most recent year-ends to provide
necessary liquidity for specific operating needs, and flexibility in
investment strategy. Changes in short-term investments reflect a variety of
seasonal and intermediate-term factors including seasonal operating cash
needs, investment strategy, and expectations as to trends in interest yields.
Accordingly, the future level of short-term investments will vary and respond
to the dynamics of these factors and may, as a result, increase or decrease
from current levels. During 1994 and 1993, the Corporation committed
substantially all investable funds in short to intermediate-term fixed
maturity securities. In the latter regard, Old Republic continues to adhere
to its long-term policy of investing primarily in investment grade,
marketable securities; the Corporation has not directed its investable funds
to so-called "junk bonds" or derivative types of securities. During 1994,
Old Republic also increased its commitment to common stock investments which
rose by 37.9% vis-a-vis the related invested balance at year-end 1993. As of
December 31, 1994, the carrying value of fixed maturity securities in default
as to principal or interest was immaterial in relation to consolidated assets
or shareholders' equity.
Consolidated operations produced positive cash flows for the latest three
years. The decline in cash flow from operations in 1994 was due mainly to a
substantial drop in title segment revenues and profitability, and a small
decline in property and liability insurance premiums. The parent holding
company has met its liquidity and capital needs for the past three years
through dividends paid by its subsidiaries and through the issuance of debt
and equity securities. 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. Additionally, the terms of guarantees by the Company of bank
loans to the trustee of the Company's Employees Savings and Stock Ownership
Plan require the Company to maintain a minimum consolidated tangible net
worth and restrict the amount of debt the Company may incur, both of which
covenants are being met.
Old Republic's capitalization of $1,719.5 at December 31, 1994 consisted
of debt and debt equivalents of $314.7, redeemable convertible preferred
stock of $16.8 (excluding $13.8 of such stock classified as a debt
equivalent), convertible preferred stock of $3.8, cumulative preferred stock
of $54.8, and common shareholders' equity of $1,329.3. The rise in the
common shareholders' equity account during the past three years reflects
primarily the retention of earnings in excess of dividends declared on
outstanding preferred and common shares, and the conversion of debt and
preferred stock to common stock. During 1994, the Corporation acquired $8.5
of common stock and $2.6 of cumulative preferred stock in open market
transactions. As of year-end 1994, a standing authorization by the Company's
Board of Directors permits it to reacquire additional amounts of such shares
for a total of up to $38.9 through May 1996.
RESULTS OF OPERATIONS
Revenues:
Net premiums and fees earned decreased by 1.6% in 1994 and increased by
11.9% and 16.0% in 1993 and 1992, respectively. In 1993 and 1992, property
and liability insurance premium increases were due to varying levels of
growth in certain parts of the Company's business, but principally among
liability coverages. In 1994, lower premium growth due to a continuation of
a soft premium rate environment for most insurance coverages, lower
participation in involuntary market pools, and the 1993 cancellation of a
crop insurance program served to reduce slightly the premium volume. Rising
mortgage rates, especially poor conditions in the large California housing
and mortgage lending market, and nearly extinct refinancing activity
nationwide during most of the year resulted in lower title insurance revenues
in 1994. Greater real estate financing activity during 1993 and 1992 led to
higher revenues in the title segment. For the past three years, mortgage
guaranty premiums increased due to a rise in the amount of renewal and new
business, and greater market penetration. Life and disability premium volume
increased moderately during the last three years as a result of greater term
life and accident insurance production.
Net investment income grew by 3.1% in 1994, was relatively flat in 1993
and grew by 1.0% in 1992. For each of the past three years, the growth in
this revenue source was bolstered by positive consolidated operating cash
flows and a concentration of investable assets in interest-bearing, fixed
maturity securities. The average annual yield on investments was 6.1%, 6.4%,
and 7.3% for the years ended December 31, 1994, 1993 and 1992, respectively.
This pattern of declining yields reflects at once the relatively short
maturity of Old Republic's fixed maturity securities portfolio and a
generally declining interest rate environment through the early part of 1994.
While the Company's investment policies have not been designed to maximize
realized investment gains, during 1992 and 1993 such gains were much higher
than those realized in 1994. In the past two years, dispositions of
securities have been caused principally by: (1) calls prior to maturity by
issuers, (2) a desire to extend moderately the average life of the portfolio,
and (3) the Company's ongoing process of continually monitoring its
investments with a view toward maximizing the quality ratings and
diversification of its portfolio. In 1994, approximately 64% of total
dispositions represented maturities and early calls of existing holdings; for
the year 1993 these amounted to approximately 58% of all securities sales and
dispositions.
Expenses:
Consolidated benefit, claim, and related settlement costs, as a percentage
of net premiums and fees earned, were approximately 53% in 1994, 56% in 1993
and 58% in 1992. This consolidated ratio was affected principally by an
improving claim ratio for property and liability insurance coverages. Through
1993 the Corporation's property and liability insurance subsidiaries, along
with other companies in the industry, sustained higher loss assessments for
residual market (assigned risk) business. In 1994, provisions for such
assessments declined as a result of the aforementioned reduction in residual
market participations by the Company's subsidiaries and by moderately
improving premium rates for workers compensation insurance. Additionally,
Old Republic's general insurance results for 1994 benefitted from improved
underwriting performance in its property and other non-liability lines due to
lower loss ratios. Policyholders' dividends incurred mainly for the
Corporation's workers compensation insurance coverages for each year reflect
changes in the loss ratio for individual experience-rated policies. The
title insurance loss ratio was affected by higher than normal claim
provisions in both 1993 and 1992 which added approximately 3.0% and 3.8%,
respectively, to this group's loss ratio. The loss ratio rose in 1994 and
1993 in the mortgage guaranty insurance line due to a rise in frequency of
claim occurrences, mostly in the California market which has been affected by
an economic slowdown for the past several years.
The ratio of consolidated underwriting, acquisition, and insurance
expenses to net premiums and fees earned was approximately 47% in 1994, 45%
in 1993 and 46% in 1992. Variations in these ratios reflect a continually
changing mix of coverages sold and attendant costs of producing business. In
years during which title insurance premiums and fees grow significantly, as
in 1993 and 1992 in particular, the consolidated expense ratio tends to rise
as production costs for this line are higher than those for most other types
of insurance sold by the Company. The ratio's rise during 1994 was due to a
significant degree to a 14% drop in title premiums and fees which was not
accompanied by a proportional reduction in production and underwriting
expenses.
Pre-Tax and Net Income:
During 1992 the Company's Title Insurance Group established greater than
normal loss provisions of $15.0 as additional funding for various title
escrow claims in process of disposition. In the same year, the Company's life
insurance subsidiaries recorded previously unrecognized tax recoveries of
$1.1 and related interest credits of approximately $12.4 stemming from
resolution of various long-standing Internal Revenue Service disputes
applicable to taxable years 1969 to 1981. These charges and credits served to
increase consolidated revenues by $12.4 and claim costs by $15.0, and to
record net current and deferred income tax credits of $1.1. Above normal
additions to Title Insurance Group claim reserves during 1993 also affected
adversely pre-tax income by approximately $13.3.
Income before taxes decreased by 7% and 3% in 1994 and 1993, respectively,
and increased by 43% in 1992. General insurance results have trended up
during the past five years and have continued as the major contributor to
consolidated earnings, principally as a result of greater investment income.
In 1994, however, improved earnings in this segment were favorably affected
by better underwriting results. Title insurance operating results declined
materially in 1994 due to the previously noted decline in revenues, while
they increased in 1993 and 1992 as a result of much greater mortgage
refinancing activity. The mortgage guaranty segment reflected significantly
improved results in each of the last three years due to increased revenues
and favorable overall claims experience, while life and disability operations
have posted a secular downward trend in the past three years. Consolidated
pre-tax income for 1993 and 1992 was also affected positively by greater than
normal realization of investment gains.
The effective consolidated income tax rates were 33% in 1994, 32% in 1993,
and 30% in 1992. The rates for each year reflect primarily the varying
proportions of pre-tax operating income derived from tax-exempt investment
income, on the one hand, and the combination of fully taxable investment
income, realized investment gains, and underwriting and service income, on
the other hand. In August 1993, the corporate federal income tax rate was
increased from 34% to 35% retroactive to January 1, 1993. In recent years
the Corporation has emphasized purchases of taxable investment securities.
Amortization of fresh start benefits stemming from the Tax Reform Act of 1986
(the "TRA") reduced income taxes by $1.9 in 1992.
The Revenue Reconciliation Act of 1990 (the "RRA") provided for a number
of changes affecting the taxation of the Corporation and a number of its
subsidiaries. Among such changes were the accelerated recognition of salvage
and subrogation recoveries, and the deferral of costs associated with the
production of life and disability business followed by the subsequent
amortization of those costs. The TRA also provided for a number of changes
affecting the taxation of the Corporation and a number of its subsidiaries.
Among such changes were reductions in corporate tax rates, the discounting of
loss reserves, the acceleration of premium income recognition, and the
inclusion in taxable income of a portion of certain tax-exempt investment
income previously not subject to tax. In addition, the TRA called for the
calculation of an alternative minimum tax. The RRA and TRA are likely to
result in accelerated payment of federal income taxes. However, most of the
additional tax payments are treated as timing differences for financial
accounting purposes. Consequently, such payments are expected to have minimal
effects on consolidated results of operations and financial position
determined in accordance with generally accepted accounting principles.
OTHER INFORMATION
Reference is here made to "Financial Information Relating to Segments of
Business" appearing elsewhere herein.
Historical data pertaining to the operating results, liquidity, and other
financial matters applicable to an insurance enterprise such as the
Corporation, are not necessarily indicative of results to be achieved in
succeeding years. 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, and 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 are some of the factors which have a bearing on
year-to-year comparisons and future operating results.
Item 8-Financial Statements
Listed below are the financial statements included herein:
OLD REPUBLIC INTERNATIONAL CORPORATION AND SUBSIDIARIES
Page No.
--------
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . 23
Consolidated Statements of Income . . . . . . . . . . . . . . . . 25
Consolidated Statements of Preferred Stock and
Common Shareholders' Equity . . . . . . . . . . . . . . . . . . 26
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . 27
Notes to Consolidated Financial Statements. . . . . . . . . . . . 28
Report of Independent Accountants . . . . . . . . . . . . . . . . 47
Old Republic International Corporation and Subsidiaries
Consolidated Balance Sheets ($ in millions)
----------------------------------------------------------------------------------------------------
December 31,
---------------------
1994 1993
--------- ---------
Assets
Investments:
Held to maturity:
Fixed maturity securities (at amortized cost) (fair value: $2,582.6
and $2,599.3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,727.2 $ 2,509.8
Other long-term investments (at cost) . . . . . . . . . . . . . . . . . . 27.3 19.8
--------- ---------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,754.6 2,529.6
========= =========
Available for sale:
Fixed maturity securities (at fair value) (cost: $646.8 and $616.5). . . 620.3 642.4
Equity securities (at fair value) (cost: $254.7 and $180.5) . . . . . . . 263.8 191.9
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . 172.1 254.3
--------- ---------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,056.2 1,088.7
--------- ---------
3,810.8 3,618.4
--------- ---------
Other Assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31.1 43.9
Securities and indebtedness of related parties . . . . . . . . . . . . . 41.1 52.3
Accrued investment income . . . . . . . . . . . . . . . . . . . . . . . . 64.3 60.6
Accounts and notes receivable . . . . . . . . . . . . . . . . . . . . . . 244.0 236.0
Federal income tax recoverable:Current . . . . . . . . . . . . . . . . . 4.8 -
Deferred . . . . . . . . . . . . . . . . . 72.4 83.2
Reinsurance balances and funds held . . . . . . . . . . . . . . . . . . . 142.4 165.8
Reinsurance recoverable:Paid losses . . . . . . . . . . . . . . . . . . . 25.6 20.2
Policy and claim reserves . . . . . . . . . . . . 1,526.3 1,524.2
Deferred policy acquisition costs . . . . . . . . . . . . . . . . . . . . 101.3 95.5
Sundry assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 198.1 197.7
--------- ---------
2,452.0 2,479.8
--------- ---------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,262.9 $ 6,098.3
========= =========
See accompanying Notes to Consolidated Financial Statements.
Old Republic International Corporation and Subsidiaries
Consolidated Balance Sheets ($ in millions) (Continued)
-------------------------------------------------------------------------------------------------
December 31,
---------------------
1994 1993
--------- ---------
Liabilities, Preferred Stock, and Common Shareholders' Equity
Liabilities:
Future policy benefits . . . . . . . . . . . . . . . . . . $ 184.9 $ 190.1
Losses, claims and settlement expenses . . . . . . . . . . 3,514.7 3,405.6
Unearned premiums. . . . . . . . . . . . . . . . . . . . . 405.5 419.2
Other policyholders' benefits and funds. . . . . . . . . . 79.1 82.9
--------- ---------
Total policy liabilities and accruals . . . . . . . . . . 4,184.3 4,097.9
Commissions, expenses, fees and taxes. . . . . . . . . . . 106.3 105.8
Reinsurance balances and funds . . . . . . . . . . . . . . 162.2 169.5
Federal income tax payable-current . . . . . . . . . . . . - 14.8
Debt and debt equivalents. . . . . . . . . . . . . . . . . 314.7 282.7
Sundry liabilities . . . . . . . . . . . . . . . . . . . . 90.4 92.4
Commitments and contingent liabilities . . . . . . . . . . - -
--------- ---------
Total Liabilities. . . . . . . . . . . . . . . . . . . . 4,858.1 4,763.3
--------- ---------
Preferred Stock:
Redeemable convertible preferred stock (*) . . . . . . . . 16.8 16.6
Convertible preferred stock (*). . . . . . . . . . . . . . 3.8 3.9
Cumulative preferred stock (*) . . . . . . . . . . . . . . 54.8 57.5
--------- ---------
Total Preferred Stock. . . . . . . . . . . . . . . . . . 75.4 78.0
--------- ---------
Common Shareholders' Equity:
Common stock(*). . . . . . . . . . . . . . . . . . . . . . 57.6 57.5
Additional paid-in capital . . . . . . . . . . . . . . . . 456.9 455.2
Net unrealized appreciation (depreciation) of securities . (10.4) 25.2
Retained earnings. . . . . . . . . . . . . . . . . . . . . 865.0 750.2
Treasury stock (at cost) . . . . . . . . . . . . . . . . . (39.8) (31.3)
--------- ---------
Total Common Shareholders' Equity. . . . . . . . . . . . 1,329.3 1,256.9
--------- ---------
Total Liabilities, Preferred Stock and Common Shareholders' Equity $ 6,262.9 $ 6,098.3
========= =========
----------
(*) At December 31, 1994 and 1993, there were 75,000,000 and 50,000,000 shares of $0.01 and no par
value preferred stock authorized, respectively, of which 25,632,708 in 1994 and 25,730,906 in
1993 were redeemable and/or convertible and cumulative preferred shares issued and outstanding.
As of the same dates, there were 250,000,000 and 100,000,000 shares of common stock, $1.00 par
value, authorized, respectively, of which 57,661,291 in 1994 and 57,538,872 in 1993 were issued.
At December 31, 1994 and 1993 there were 50,000,000 and 20,000,000 shares of Class B Common Stock,
$1.00 par value, authorized, respectively, of which 0 shares were issued. Common shares classified
as treasury stock were 6,124,879 and 5,694,871 as of December 31, 1994 and 1993, respectively.
See accompanying Notes to Consolidated Financial Statements.
Old Republic International Corporation and Subsidiaries
Consolidated Statements of Income ($ in millions, Except Share Data)
--------------------------------------------------------------------------------------------------------------
Years Ended December 31,
------------------------------------
1994 1993 1992
---------- ---------- ----------
Revenues:
Net premiums earned. . . . . . . . . . . . . . $ 1,282.9 $ 1,246.0 $ 1,103.5
Title, escrow, and other fees. . . . . . . . . 140.3 199.7 188.4
Net investment income. . . . . . . . . . . . . 227.5 220.7 221.5
Realized investment gains. . . . . . . . . . . 7.7 40.2 62.8
Other income . . . . . . . . . . . . . . . . . 20.4 29.5 40.7
---------- ---------- ----------
1,679.0 1,736.3 1,617.0
---------- ---------- ----------
Benefits, Losses and Expenses:
Benefits, claims, and settlement expenses. . . 753.5 817.8 709.6
Dividends to policyholders . . . . . . . . . . 7.6 (6.4) 42.4
Underwriting, acquisition, and insurance expenses 668.5 656.7 591.0
Interest and other charges . . . . . . . . . . 23.3 24.8 23.1
---------- ---------- ----------
1,453.1 1,492.9 1,366.3
---------- ---------- ----------
Income before income taxes and items below . . 225.8 243.3 250.7
---------- ---------- ----------
Income Taxes:Currently payable . . . . . . . . 41.8 68.3 54.4
Deferred . . . . . . . . . . . . . 31.5 9.6 20.5
---------- ---------- ----------
Total. . . . . . . . . . . . . . . 73.4 78.0 75.0
---------- ---------- ----------
Income before items below. . . . . . . . . . . 152.4 165.3 175.6
Equity in earnings of unconsolidated subsidiaries
and minority interests. . . . . . . . . . . . (1.4) 1.1 (.9)
---------- ---------- ----------
Income before cumulative effect of accounting changes 151.0 166.4 174.7
Cumulative effect of accounting changes. . . . - 8.6 -
---------- ---------- ----------
Net Income . . . . . . . . . . . . . . . . . . $ 151.0 $ 175.1 $ 174.7
========== ========== ==========
Net Income Per Share:
Primary:
Before cumulative effect of accounting changes $ 2.55 $ 2.83 $ 3.09
Cumulative effect of accounting changes. . . - .15 -
---------- ---------- ----------
Net income . . . . . . . . . . . . . . . . . $ 2.55 $ 2.98 $ 3.09
========== ========== ==========
Fully Diluted:
Before cumulative effect of accounting changes $ 2.44 $ 2.69 $ 2.95
Cumulative effect of accounting changes. . . - .14 -
---------- ---------- ----------
Net income . . . . . . . . . . . . . . . . . $ 2.44 $ 2.83 $ 2.95
========== ========== ==========
Average number of common and common
equivalent shares outstanding:Primary . . . . 57,207,702 57,077,542 54,516,581
========== ========== ==========
Fully Diluted . . . 61,657,490 61,519,432 58,317,906
========== ========== ==========
Dividends Per Common Share:
Cash. . . . . . . . . . . . . . . . . . . . . $ .47 $ .43 $ .39
Stock . . . . . . . . . . . . . . . . . . . . -% -% 100%
========== ========== ==========
See accompanying Notes to Consolidated Financial Statements.
Old Republic International Corporation and Subsidiaries
Consolidated Statements of Preferred Stock
and Common Shareholders' Equity ($ in millions)
------------------------------------------------------------------------------------------------------------
Years Ended December 31,
-----------------------------------
1994 1993 1992
--------- --------- ---------
Redeemable Convertible Preferred Stock:
Balance, beginning of year. . . . . . . . . . $ 16.6 $ 18.7 $ 17.1
Amortization to redemption value capitalized (1.1) (1.0) (1.0)
Converted into common stock . . . . . . . . - (6.3) (1.5)
Reclassification from debt equivalent . . . 1.3 5.2 4.2
--------- --------- ---------
Balance, end of year. . . . . . . . . . . . . $ 16.8 $ 16.6 $ 18.7
========= ========= =========
Convertible Preferred Stock:
Balance, beginning of year. . . . . . . . . . $ 3.9 $ 4.5 $ 6.1
Exercise of stock options . . . . . . . . . .2 - -
Converted into common stock . . . . . . . . (.3) (.6) (1.6)
--------- --------- ---------
Balance, end of year. . . . . . . . . . . . . $ 3.8 $ 3.9 $ 4.5
========= ========= =========
Cumulative Preferred Stock:
Balance, beginning of year. . . . . . . . . . $ 57.5 $ 57.5 $ 57.5
Stock acquired during the year. . . . . . . (2.6) - -
--------- --------- ---------
Balance, end of year. . . . . . . . . . . . . $ 54.8 $ 57.5 $ 57.5
========= ========= =========
Common Stock:
Balance, beginning of year. . . . . . . . . . $ 57.5 $ 56.3 $ 26.2
Stock issued during the year:
Stock dividends . . . . . . . . . . . . . - - 26.3
Dividend reinvestment plan. . . . . . . . - - -
Exercise of stock options . . . . . . . . - .3 .6
Conversion of convertible debt. . . . . . . - - 2.6
Conversion of convertible preferred stock . - .8 .3
--------- --------- ---------
Balance, end of year. . . . . . . . . . . . . $ 57.6 $ 57.5 $ 56.3
========= ========= =========
Additional Paid-in Capital:
Balance, beginning of year. . . . . . . . . . $ 455.2 $ 444.6 $ 393.4
Stock issued during the year:
Stock dividends . . . . . . . . . . . . . - - -
Dividend reinvestment plan. . . . . . . . .4 .4 .4
Exercise of stock options . . . . . . . . .8 3.8 9.3
Conversion of convertible debt. . . . . . . - - 38.6
Conversion of convertible preferred stock . .3 6.2 2.8
--------- --------- ---------
Balance, end of year. . . . . . . . . . . . . $ 456.9 $ 455.2 $ 444.6
========= ========= =========
Net Unrealized Appreciation (Depreciation) of Securities:
Balance, beginning of year. . . . . . . . . . $ 25.2 $ 8.9 $ 4.1
Change for the year, net of deferred tax if any (35.7) 16.3 4.8
--------- --------- ---------
Balance, end of year. . . . . . . . . . . . . $ (10.4) $ 25.2 $ 8.9
========= ========= =========
Retained Earnings:
Balance, beginning of year. . . . . . . . . . $ 750.2 $ 606.3 $ 489.2
Net income. . . . . . . . . . . . . . . . . 151.0 175.1 174.7
Dividends on common stock:Cash. . . . . . . (24.5) (21.6) (19.0)
Stock . . . . . . . . - - (26.3)
Dividends on preferred stock. . . . . . . . (7.0) (7.2) (7.8)
Currency translation adjustments. . . . . . (4.6) (2.2) (4.3)
--------- --------- ---------
Balance, end of year. . . . . . . . . . . . . $ 865.0 $ 750.2 $ 606.3
========= ========= =========
Treasury Stock:
Balance, beginning of year. . . . . . . . . . $ (31.3) $ (31.3) $ (31.3)
Acquired during the year. . . . . . . . . . (8.5) - -
--------- --------- ---------
Balance, end of year. . . . . . . . . . . . . $ (39.8) $ (31.3) $ (31.3)
========= ========= =========
See accompanying Notes to Consolidated Financial Statements.
Old Republic International Corporation and Subsidiaries
Consolidated Statements of Cash Flows ($ in millions)
-------------------------------------------------------------------------------------------------------------
Years Ended December 31,
-----------------------------------
1994 1993 1992
--------- --------- ---------
Cash flows from operating activities:
Net income. . . . . . . . . . . . . . . . . . $ 151.0 $ 175.1 $ 174.7
Change in non-cash items:
Deferred policy acquisition costs . . . . . (5.7) (16.5) (11.5)
Premiums and other receivables. . . . . . . (7.8) (58.1) (16.8)
Unpaid claims and related items . . . . . . 107.5 154.0 50.8
Future policy benefits and policyholders' funds (18.6) 47.5 2.2
Income taxes. . . . . . . . . . . . . . . . 9.2 (.7) 20.9
Reinsurance balances and funds. . . . . . . 11.1 75.9 58.9
Accounts payable, accrued expenses and other 13.7 16.7 19.7
-------- --------- ---------
Total . . . . . . . . . . . . . . . . . . . . 260.4 394.0 299.0
-------- --------- ---------
Cash flows from investing activities:
Sales of fixed maturity securities:
Held to maturity:
Maturities and early calls. . . . . . . . . 159.3 366.1 543.3
Other . . . . . . . . . . . . . . . . . . . 23.4 133.6 929.6
Available for sale:
Maturities. . . . . . . . . . . . . . . . . 31.9 24.4 -
Other . . . . . . . . . . . . . . . . . . . 86.3 151.0 -
Sales of equity securities. . . . . . . . . . 30.2 69.3 5.1
Sales of other investments. . . . . . . . . . 4.7 6.3 7.1
Sales of fixed assets for company use . . . . 3.7 2.0 1.6
Purchases of fixed maturity securities:
Held to maturity. . . . . . . . . . . . . . (411.2) (828.3) (1,756.0)
Available for sale. . . . . . . . . . . . . (152.3) (140.1) -
Purchases of equity securities. . . . . . . . (100.8) (133.7) (72.3)
Purchases of other investments. . . . . . . . (12.2) (6.0) (10.9)
Purchases of fixed assets for company use . . (11.4) (12.1) (11.0)
Other-net . . . . . . . . . . . . . . . . . . 1.2 (1.7) (2.1)
-------- --------- --------
Total . . . . . . . . . . . . . . . . . . . . (347.0) (369.1) (365.5)
-------- --------- --------
Cash flows from financing activities:
Increase in term loans. . . . . . . . . . . . 34.0 17.4 1.6
Issuance of preferred and common stock. . . . 1.6 4.7 10.4
Issuance of debentures and notes. . . . . . . - - 131.0
Repayments of term loans. . . . . . . . . . . (.5) (6.9) (57.6)
Dividends on common shares. . . . . . . . . . (24.5) (21.6) (19.0)
Dividends on preferred shares . . . . . . . . (8.2) (8.3) (8.9)
Purchases of treasury stock . . . . . . . . . (8.5) - -
Purchases of cumulative preferred stock . . . (2.6) - -
Other-net . . . . . . . . . . . . . . . . . . .4 7.5 -
------- --------- -------
Total . . . . . . . . . . . . . . . . . . . . (8.4) (7.3) 57.3
------- --------- -------
Increase (decrease) in cash and short-term
investments . . . . . . . . . . . . . . . . . (95.0) 17.5 (9.2)
Cash and short-term investments, beginning of year 298.3 280.7 290.0
--------- --------- ---------
Cash and short-term investments, end of year. $ 203.3 $ 298.3 $ 280.7
========= ========= =========
See accompanying Notes to Consolidated Financial Statements.
Old Republic International Corporation and Subsidiaries
Notes to Consolidated Financial Statements
($ in Millions, Except as Otherwise Indicated)
----------------------------------------------------------------------------
Note 1-Summary of Significant Accounting Policies-The significant accounting
policies employed by Old Republic International Corporation ("Old Republic",
"the Company", or "the Corporation") and its subsidiaries are set forth in
the following summary. See Note 7 for a discussion of the Company's business
segments.
(a) Consolidation Practices-The consolidated financial statements include the
accounts of the Corporation and those of its major insurance underwriting and
service subsidiaries. Non-consolidated insurance marketing and service
subsidiaries are insignificant and are reflected on the equity basis of
accounting.
(b) Accounting Principles-The Corporation's insurance underwriting
subsidiaries maintain their records in conformity with accounting practices
prescribed or permitted by state insurance regulatory authorities. In
consolidating such subsidiaries, adjustments have been made to conform their
accounts with generally accepted accounting principles.
(c) Investments-The Company classifies its invested assets in terms of those
assets relative to which it either (1) has the intent and ability to hold
until maturity (generally carried at amortized costs for fixed maturity
securities), (2) has available for sale (carried at fair value with
adjustments to equity) or (3) has the intention of trading (carried at fair
value with adjustments to income). The Company's invested assets are
classified as either "held to maturity" or "available for sale."
Bonds, notes and redeemable preferred stocks classified as "held to
maturity" are generally carried at amortized costs while bonds and notes
classified as "available for sale" in addition to other preferred and common
stocks (equity securities) are included at fair value. Fair values for fixed
maturity securities are based on quoted market prices or estimated using
values obtained from independent pricing services as applicable. Mortgage
and policy loans (other long-term investments) are carried on the basis of
the lower of unpaid principal balances or estimated realizable value. While
the aggregate fair value of fixed maturity securities -"held to maturity" at
December 31, 1994 was below their carrying values, the Company does not
currently expect the realization of such losses from a forced sale of all or
part of these securities.
The amortized cost and estimated fair values of fixed maturity securities
are as follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------- -------- -------- --------
Fixed Maturity Securities:
December 31, 1994:
Held to maturity:
Taxable bonds and notes . . . . $2,275.6 $ 2.0 $ 126.3 $2,151.4
Tax-exempt bonds and notes. . . 450.7 1.4 21.7 430.3
Redeemable preferred stocks . . .8 - - .7
-------- -------- -------- --------
$2,727.2 $ 3.5 $ 148.1 $2,582.6
======== ======== ======== ========
Available for sale:
Taxable bonds and notes (a) . . $ 646.8 $ 1.6 $ 28.1 $ 620.3
======== ======== ======== ========
December 31, 1993:
Held to maturity:
Taxable bonds and notes . . . . $2,231.6 $ 87.9 $ 6.4 $2,312.9
Tax-exempt bonds and notes. . . 276.9 8.5 .4 285.0
Redeemable preferred stocks . . 1.2 .1 - 1.3
-------- -------- -------- --------
$2,509.7 $ 96.5 $ 6.8 $2,599.3
======== ======== ======== ========
Available for sale:
Taxable bonds and notes (a) . . $ 616.5 $ 26.7 $ .8 $ 642.4
======== ======== ======== ========
----------
(a) Consists of U.S. Government bonds and notes and convertible bonds.
The amortized cost and estimated fair value at December 31, 1994, by
contractual maturity, are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
Estimated
Amortized Fair
Cost Value
-------- --------
Fixed Maturity Securities:
Held to Maturity:
Due in one year or less . . . . . . . . . . . . . . $ 122.7 $ 123.1
Due after one year through five years . . . . . . . 1,180.6 1,139.0
Due after five years through ten years. . . . . . . 1,374.5 1,272.3
Due after ten years . . . . . . . . . . . . . . . . 49.1 48.0
-------- --------
$2,727.2 $2,582.6
======== ========
Available for Sale:
Due in one year or less . . . . . . . . . . . . . . $ 51.6 $ 51.3
Due after one year through five years . . . . . . . 237.3 227.5
Due after five years through ten years. . . . . . . 314.9 299.6
Due after ten years . . . . . . . . . . . . . . . . 42.8 41.7
-------- --------
$ 646.8 $ 620.3
======== ========
A summary of the Company's equity securities follows:
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gains Losses Value
-------- -------- -------- --------
Equity Securities:
December 31, 1994:
Common stocks . . . . . . . . . $ 250.0 $ 20.9 $ 11.7 $ 259.2
Non redeemable preferred stocks 4.6 - .1 4.5
-------- -------- -------- --------
$ 254.7 $ 20.9 $ 11.8 $ 263.8
======== ======== ======== ========
December 31, 1993:
Common stocks . . . . . . . . . $ 176.6 $ 18.4 $ 6.9 $ 188.0
Non redeemable preferred stocks 3.9 - .1 3.8
-------- -------- -------- --------
$ 180.5 $ 18.4 $ 7.0 $ 191.9
======== ======== ======== ========
Investment income is reported net of allocated expenses and includes
appropriate adjustments for amortization of premium and accretion of discount
on fixed maturity securities acquired at other than par value. Dividends on
stock are credited to income on the ex-dividend date. Realized investment
gains and losses are reflected as revenues in the income statement and are
determined on the basis of amortized value at date of sale for fixed maturity
securities, and cost in regard to stocks; such bases apply to the specific
securities sold. Unrealized investment gains and losses, net of any deferred
income taxes, are recorded directly in a separate account of shareholders'
equity.
At December 31, 1994, the Corporation and its subsidiaries had non-income
producing investments aggregating $0.4.
The following table reflects the composition of net investment income and
net realized and unrealized investment gains or losses for each of the years
shown:
Years Ended December 31,
----------------------------
1994 1993 1992
------- ------- --------
Investment income from:
Fixed maturity securities. . . . . . . . . $ 208.2 $ 205.2 $ 205.3
Equity securities. . . . . . . . . . . . . 7.5 5.0 2.7
Short-term investments . . . . . . . . . . 9.7 8.7 9.8
Other sources. . . . . . . . . . . . . . . 7.9 7.0 8.8
------- ------- -------
Gross investment income . . . . . . . . . 233.6 226.0 226.7
Investment expenses (1). . . . . . . . . . 6.0 5.2 5.1
------- ------- ------
Net investment income . . . . . . . . . . $ 227.5 $ 220.7 $ 221.5
======= ======= =======
Realized gains (losses) on:
Fixed maturity securities:
Held to maturity . . . . . . . . . . . . . $ 1.1 $ 11.3 $ 61.0
Available for Sale:
Gains . . . . . . . . . . . . . . . . . . 2.0 19.5 -
Losses. . . . . . . . . . . . . . . . . . (.3) (4.1) -
------- ------- -------
Net . . . . . . . . . . . . . . . . . . 1.7 15.4 -
------- ------- -------
Total . . . . . . . . . . . . . . . . . . 2.8 26.7 61.0
------- ------- -------
Equity securities. . . . . . . . . . . . . 5.3 13.6 1.7
Other assets . . . . . . . . . . . . . . . (.5) (.1) -
------- ------- -------
Total . . . . . . . . . . . . . . . . . . 7.7 40.2 62.8
Income taxes . . . . . . . . . . . . . . . 2.7 14.4 19.9
------- ------- -------
Net realized gains. . . . . . . . . . . . $ 5.0 $ 25.7 $ 42.8
======= ======= =======
Unrealized investment gains (losses) on:
Fixed maturity securities:
Held to Maturity (2). . . . . . . . . . . $(234.0) $ 37.8 $ (49.7)
======= ======= =======
Available for sale. . . . . . . . . . . . $ (50.8) $ 25.2 $ -
Less: Deferred income taxes. . . . . . . (17.4) 8.7 -
------- ------- -------
Net unrealized gains (losses) . . . . . $ (33.3) $ 16.4 $ -
======= ======= =======
Equity securities-available for sale . . . $ (3.2) $ (.7) $ 7.2
Less: Deferred income taxes (credits). . . ( .8) (.6) 2.4
------- ------- -------
Net unrealized gains (losses) . . . . . . $ (2.3) $ (.1) $ 4.8
======= ======= =======
----------
(1)Investment expenses include interest expense of $0.7 in 1994, $0.7 in
1993, and $1.0 in 1992, relating to reinsurance agreements and
retrospective premium adjustment contracts of insurance subsidiaries.
Substantially all other expenses consist of salaries and investment
service fees.
(2)Deferred income taxes do not apply since these securities are carried at
amortized cost.
(d) Revenue Recognition-Pursuant to generally accepted accounting principles
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.
General insurance (property and liability) and level-term credit life
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. Title insurance premiums are
recognized as income upon the substantial competition of the policy issuance
process. Title abstract, escrow, service, and other fees are taken into
income at the time that the services are performed. 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. Ordinary life and annuity 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.
(e) Deferred Policy Acquisition Costs-The Corporation's insurance
subsidiaries, other than title companies, defer certain costs which vary with
and are primarily related to the production of business. Deferred costs
consist principally of commissions, premium taxes, marketing, and policy
issuance expenses. With respect to most coverages, deferred acquisition costs
are amortized on the same basis as the related premiums are earned or,
alternatively, over the periods during which premiums will be paid or
underwriting and claim services performed. The following table summarizes
deferred policy acquisition costs and related data for the years shown:
Years Ended December 31,
---------------------------
1994 1993 1992
------- ------- -------
Deferred, beginning of year. . . . . . . . . $ 95.5 $ 78.9 $ 67.5
------- ------- -------
Acquisition costs deferred:
Commissions - net of reinsurance . . . . . 110.5 117.1 88.8
Premium taxes. . . . . . . . . . . . . . . 33.8 22.2 33.4
Salaries and other marketing expenses. . . 52.2 46.9 43.9
------- ------- -------
Total . . . . . . . . . . . . . . . . . . 196.8 186.2 166.4
Amortization charged to income . . . . . . . (191.0) (169.6) (154.9)
------- ------- -------
Change for the year . . . . . . . . . . . 5.6 16.6 11.4
------- ------- -------
Deferred, end of year. . . . . . . . . . . . $ 101.3 $ 95.5 $ 78.9
======= ======= =======
(f) Future Policy Benefits/Unearned Premiums-See note 1(g) for discussion of
FAS No. 113 "Accounting and Reporting for Reinsurance of Short Duration and
Long-Duration Contracts". General insurance and level term credit life
insurance policy liabilities represent unearned premium reserves developed by
application of monthly pro-rata factors to premiums in force.
Disability/accident & health and decreasing term credit life insurance policy
liabilities are calculated primarily on a sum-of-the-years-digits method.
Mortgage guaranty unearned premium reserves are calculated primarily on a
pro-rata basis. Ordinary life policy liabilities are determined on a level
premium method and take into account mortality and withdrawal rates based
principally on anticipated company experience; assumed interest rates range
from 3.0% to 6.0%. With respect to annuity policies, the liabilities
represent the surrender value of such policies during deferral periods,
without adjustment for surrender charges; such values are deemed appropriate
to provide for ultimate benefit reserves in the event policyholders exercise
an annuity benefit option at a later date.
At December 31, 1994 and 1993, the Life Insurance Group had $4,423.4 and
$4,286.7, respectively, of net life insurance in force. Future policy
liabilities and unearned premiums, consisted of the following:
December 31,
-----------------------
1994 1993
-------- --------
General Insurance Group . . . . . . . . . . . . . $ 323.8 $ 337.6
-------- --------
Mortgage Guaranty Group . . . . . . . . . . . . . 81.6 81.5
-------- --------
Life Insurance Group:
Life insurance . . . . . . . . . . . . . . . . . 58.0 58.0
Annuities. . . . . . . . . . . . . . . . . . . . 91.3 98.5
Disability/accident & health . . . . . . . . . . 35.6 33.5
-------- --------
Sub-total. . . . . . . . . . . . . . . . . . . . 184.9 190.1
-------- --------
Consolidated. . . . . . . . . . . . . . . . . . . $ 590.4 $ 609.3
======== ========
The Company issues, directly or as a reinsurer, certain insurance policies
generally categorized as financial guarantees. The major types of guarantees
pertain to (a) state, municipal and other general or special revenue bonds,
(b) variable interest rate guarantees, and (c) insurance of the future
residual value of fixed assets. The types of risks involved include failure
by the bond issuer to make timely payment of principal and interest, changes
in interest rates, and changes in the future value of fixed assets. The
degree of risk pertaining to these insurance products is largely dependent on
the effects of general economic cycles and changes in the credit worthiness
of issuers whose obligations have been guaranteed. During the past three
years, new commitments have been limited to those identified at (a)
immediately above.
Premiums received for financial guarantee policies are generally earned
over the terms of the contract (which may range between 5 and 30 years) or on
the basis of current exposure relative to maximum exposure in force; with
respect to residual value insurance, that portion of the premium in excess of
certain initial underwriting costs is deferred and taken into income when all
events leading to the determination of exposure, if any, have occurred. Since
losses on financial guarantee insurance products cannot be predicted
reliably, the Company's unearned premium reserves serve as the primary income
recognition and loss reserving mechanism. When losses become known and
determinable, they are paid or placed in reserve and the remaining
directly-related unearned premiums are taken into income.
No assurance can be given that unearned premiums will be greater or less
than ultimate incurred losses on these policies.
The following table reflects certain data pertaining to net insurance in
force for the Company's financial guarantee business at the dates shown:
Years Ended December 31,
------------------------
1994 1993
-------- ---------
Net Insurance in Force:
Bonds. . . . . . . . . . . . . . . . . . . . . . $2,342.8 $2,424.0
Variable interest rate . . . . . . . . . . . . . 1.0 1.7
Residual value . . . . . . . . . . . . . . . . . .8 1.0
Net Unearned Premiums:
Bonds. . . . . . . . . . . . . . . . . . . . . . 14.8 16.8
Variable interest rate . . . . . . . . . . . . . 1.0 1.7
Residual value . . . . . . . . . . . . . . . . . $ - $ -
======== ========
With respect to mortgage guaranty insurance (net insurance in force of
$30,405.3 and $24,026.1, at December 31, 1994 and 1993, respectively) the
Company's reserving policies are set forth below in Note l(g).
(g) Losses, Claims and Settlement Expenses-Reserves are provided for the
ultimate expected cost of settling unpaid losses and claims reported at each
balance sheet date. Losses and claims incurred but not reported, as well as
expenses required to settle losses and claims are established on the basis of
various criteria, including historical cost experience and anticipated costs
of servicing reinsured and other risks. Long-term disability-type workers'
compensation reserves, however, are discounted to present value based on
interest rates ranging from 3.5% to 4%.
Effective January 1, 1993 the Company adopted Financial Accounting
Standard (FAS) No. 113 "Accounting and Reporting for Reinsurance of
Short-Duration and Long-Duration Contracts" which changes the previous
reporting of assets and liabilities relating to reinsured contracts on a net
of reinsurance ceded balances basis. As a result, reinsured outstanding
losses and unearned premiums are to be reported as assets. Accordingly, at
December 31, 1994 and 1993, assets and liabilities were increased by
corresponding amounts of approximately $1.5 billion. FAS No. 113 did not
have any effect on the Company's results of operations and did not require
retroactive application to 1992 and prior years.
The following table shows an analysis of changes in aggregate reserves for
the Company's losses, claims and settlement expenses for each of the years
shown.
Years Ended December 31,
------------------------------
1994 1993 1992
-------- -------- --------
Amount of reserves for unpaid claims and claim adjustment
expenses at the beginning of each year, net of reinsurance
losses recoverable . . . . . . . . . . . . . $1,989.8 $1,836.4 $1,780.1
-------- -------- --------
Incurred claims and claim adjustment expenses:
Provisions for insured events of the current year 857.3 871.9 740.2
Change in provision for insured events of prior years (100.4) (54.5) (29.8)
-------- --------- --------
Total incurred claims and claim adjustment expenses 756.8 817.4 710.6
-------- -------- --------
Payments:
Claims and claim adjustment expenses attributable to insured
events of the current year. . . . . . . . . 279.9 295.4 235.5
Claims and claim adjustment expenses attributable to insured
events of prior years . . . . . . . . . . . 370.1 368.6 418.6
-------- -------- --------
Total payments. . . . . . . . . . . . . . 650.1 663.9 654.2
-------- -------- --------
Amount of reserves for unpaid claims and claim adjustment
expenses at the end of each year, net of reinsurance
losses recoverable . . . . . . . . . . . . . 2,096.5 1,989.8 1,836.4
Reinsurance losses recoverable. . . . . . . . 1,418.1 1,415.7 -
-------- -------- --------
Amount of reserves for unpaid claims and claim adjustment
expenses . . . . . . . . . . . . . . . . . . $3,514.7 $3,405.6 $1,836.4
======== ======== ========
All reserves are necessarily based on estimates which are periodically
reviewed and evaluated in the light of emerging claim experience and existing
circumstances. The resulting changes in estimates are recorded in operations
of the periods during which they are made. Return and additional premiums
and policyholders dividends, all of which tend to be affected by development
of claims in future years, may offset in whole or in part developed claim
redundancies on deficiencies for certain coverages such as workers
compensation.
The data in the table above, incorporates the Corporation's estimates for
various environmental impairment and asbestos-related claim or related costs
that have been filed in the normal course of business against a number of its
insurance subsidiaries. Such claims relate primarily to policies issued
prior to 1985, many during a short period between 1981 and 1982 pursuant to
an agency agreement canceled in 1982. During all years and through the
current date, the Corporation's insurance subsidiaries have typically issued
general liability insurance policies with face amounts ranging between $1
million and $2 million and rarely exceeding $10 million. Such policies have,
in turn, been subject to reinsurance cessions which have typically reduced
the Corporation's retentions to $500,000 or less as to each claim.
The Corporation's reserving methods, particularly as they apply to
formula-based reserves, have been established to cover normal claim
occurrences as well as unusual exposures such as those pertaining to
environmental and asbestosis claims and related costs. At times, however,
the Corporation's insurance subsidiaries also establish specific formula and
other reserves as part of their overall claim and claim expense reserves.
These are intended to cover additional litigation and other costs that are
likely to be incurred to protect the Company's interests in litigated cases
in particular. At December 31, 1994 the Corporation's aggregate reserves
specifically identified with environmental and asbestosis exposures amounted
to approximately $60.4 million gross, and $37.7 million net of reinsurance.
Through December 31, 1994 the Corporation's historical indemnity and loss
expense payments relative to these exposures have been negligible in the
context of loss and loss expense payments made for all types of claims.
Old Republic disagrees with the allegations of liability on virtually all
environmental and asbestos-related claims of which it has knowledge on the
grounds that exclusions in the policies preclude coverage for nearly all such
claims, and that the Corporation never intended to assume such risks. Old
Republic's exposure on such claims cannot therefore be calculated by
conventional insurance reserving methods for this and a variety of reasons,
including: a) the absence of statistically valid data inasmuch as such
claims typically involve long reporting delays and very often uncertainty as
to the number and identity of insureds against whom such claims have arisen
or will arise; and b) the litigation history of such or similar claims for
the insurance industry has produced court decisions that have been
inconsistent with regard to such issues as when the alleged loss occurred,
which policies provide coverage, how a loss is to be allocated among
potentially responsible insureds and/or their insurance carriers, how policy
coverage exclusions are to be interpreted, what types of environmental
impairment or toxic tort claims are covered, when the insurer's duty to
defend is triggered, how policy limits are to be calculated, and whether
clean-up costs constitute property damage.
Insurance industry associations, individual insurance companies, and
others who have evaluated the potential costs of litigating and settling
environmental and asbestos-type claims have noted with increasing concern the
probability that resolution of such claims, by applying liability
retroactively in the context of the existing insurance system, would likely
bankrupt or undermine seriously the financial condition of the property and
liability insurance industry. In the light of this substantial public policy
issue, the Corporation is of the view that the courts will not resolve in the
near future the litigation gridlock stemming from the non-resolution to date
of many environmental and asbestos-related claims. In recent times the
Executive Branch and/or the United States Congress have proposed changes in
the legislation and rules affecting these types of claims. As of December
31, 1994, however, there is no solid evidence suggesting that forthcoming
changes might mitigate or reduce some or all of these claims.
Because of all these issues and uncertainties, estimation of reserves for
losses and allocated loss adjustment expenses for the above noted types of
claims is extremely difficult or impossible. Accordingly, no representation
can be made that the Corporation's reserves for such claims and related costs
will not prove to be overstated or understated in the future.
(h) Income Taxes-The Corporation and most of its subsidiaries file a
consolidated tax return and provide for income taxes payable currently.
Deferred income taxes included in the accompanying consolidated financial
statements pursuant to generally accepted accounting principles will not
necessarily become payable/recoverable in the future. Effective January 1,
1993 the Company adopted Financial Accounting Standard (FAS) No. 109
"Accounting for Income Taxes" that required a change to the asset and
liability method of calculating deferred income taxes. The cumulative effect
of this change resulted in an increase in net income of $13.3, or $.23 per
share ($.22 fully diluted) in 1993. This method calls for the establishment
of a deferred tax, calculated at currently effective tax rates, for the
cumulative temporary differences between financial statement and tax bases of
assets and liabilities. Prior to January 1, 1993 deferred income taxes were
established for income and expense items reported in the consolidated
financial statements in different periods than for tax purposes.
The provision for combined current and deferred income taxes reflected in
the consolidated statements of income does not bear the usual relationship to
operating income before taxes as the result of permanent and other
differences between pre-tax income and taxable income determined under
existing tax regulations. The more significant differences, their effect on
the statutory income tax rate, and the resulting effective income tax rates
are summarized below:
Years Ended December 31,
----------------------------
1994 1993 1992
-------- -------- --------
Statutory tax rate . . . . . . . . . . . . . . 35.0% 35.0% 34.0%
Tax rate increases (decreases):
Tax-exempt interest . . . . . . . . . . . . (2.4) (1.4) (1.8)
Dividends received exclusion. . . . . . . . (.9) (.7) (.4)
Fresh start adjustment and amortization . . - - (.7)
Change in tax rate on beginning temporary differences - (1.2) -
Other items - net . . . . . . . . . . . . . .8 .4 (1.2)
-------- -------- --------
Effective tax rate . . . . . . . . . . . . . . 32.5% 32.0% 29.9%
======== ======== ========
A summary of deferred income taxes applicable to the year ended
December 31, 1992, calculated on a historical basis prior to adoption
FAS 109 follows:
1992
-------
Deferred policy acquisition costs . . . . . . . . . . . . . . . . $ 5.7
Future policy benefits. . . . . . . . . . . . . . . . . . . . . . 3.5
Loss and unearned premium reserve discounting and
amortization. . . . . . . . . . . . . . . . . . . . . . . . . . (4.9)
Fresh start amortization of discounted loss reserves. . . . . . . (1.9)
Contingency reserves. . . . . . . . . . . . . . . . . . . . . . . 17.2
Other items - net . . . . . . . . . . . . . . . . . . . . . . . . .9
-------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20.5
=======
The tax effects of temporary differences that give rise to significant
portions of the Company's net deferred tax recoverable are as follows at the
dates shown:
December 31, January 1,
----------------------
1994 1993 1993
--------- --------- ---------
Deferred Tax Assets:
Future policy benefits . . . . . . . $ 3.1 $ 1.7 $ 1.5
Losses, claims, and settlement expenses 179.8 182.2 165.4
Unearned premium reserves. . . . . . 1.0 6.2 3.4
Other. . . . . . . . . . . . . . . . 8.7 8.7 8.6
--------- --------- --------
Total gross deferred tax assets. . 192.7 199.0 178.9
Less-valuation allowance . . . . . 1.4 3.9 4.1
--------- --------- --------
Net deferred tax assets. . . . . . 191.3 195.0 174.8
--------- --------- --------
Deferred Tax Liabilities:
Deferred policy acquisition costs. . 35.5 34.2 27.8
Mortgage guaranty insurers contingency reserves 67.2 43.2 25.1
Fixed maturity securities adjusted to costs 3.6 4.8 3.4
Unrealized investment gains (losses) (5.5) 10.2 2.6
Title plants and records . . . . . . 3.4 3.4 3.3
Other. . . . . . . . . . . . . . . . 14.5 15.7 18.8
--------- --------- --------
Total deferred tax liabilities . . 118.8 111.9 $ 81.3
--------- --------- --------
Net deferred tax asset . . . . . . $ 72.4 $ 83.2 $ 93.4
========= ========= ========
Pursuant to special provisions of the Internal Revenue Code pertaining to
mortgage guaranty insurers, a contingency reserve (established in accordance
with insurance regulations designed to protect policyholders against
extraordinary volumes of claims) is deductible from gross income. The tax
benefits obtained from such deductions must, however, be invested in a
special type of non-interest bearing U.S. Government Tax and Loss Bond. For
Federal income tax purposes, the amounts deducted for the contingency reserve
are taken into gross statutory taxable income (a) when the contingency
reserve is permitted to be charged for losses under state law or regulation,
(b) in the event operating losses are incurred, or (c) in any event upon the
expiration of ten years.
Life Insurance companies domiciled in the United States and qualifying as
life insurers for tax purposes are taxed under special provisions of the
Internal Revenue Code. As a result of legislation, 1983 and prior years' tax
deferred earnings (cumulatively $20.7 at December 31, 1993) credited to the
former memorandum policyholders' surplus account" will not be taxed unless
they are subsequently distributed to shareholders. The Company does not
presently anticipate any distribution or payment of taxes on such earnings in
the future.
As a result of regular examinations of the tax returns for the Corporation
and its subsidiaries, the Internal Revenue Service ("IRS") has proposed
certain adjustments for additional taxes applicable to the years 1982 to
1990. The proposed adjustments pertain to the timing of certain deductions,
the IRS's contention that contractually obligated premium refunds should be
treated as dividends, deductions for certain loss and related reserves, a
reinsurance transaction, and several other issues not involving material
amounts. The Company and its tax counsel believe that substantially all of
the proposed material adjustments are without merit, that the Company will be
successful in vigorously defending its positions, and that the ultimate
adjustments, if any, will not significantly affect its financial condition or
results of operations. During 1994 and 1993, certain of the proposed
adjustments were finally settled for immaterial amounts. In 1992, the
Company's life insurance subsidiaries recorded previously unrecognized tax
recoveries of $1.1 and related interest credits of approximately $12.4
stemming from resolution of various long-standing Internal Revenue Service
disputes applicable to taxable years 1969 to 1981.
(i) Property and Equipment-Property and equipment is generally depreciated or
amortized over the estimated useful lives of the assets, (2 to 45 years),
substantially by the straight-line method. Expenditures for maintenance and
repairs are charged to income as incurred, and expenditures for major
renewals and additions are capitalized.
(j) Title Plants and Records-Title plants and records are carried at original
cost or appraised value at date of purchase. Such values represent the cost
of producing or acquiring interests in title records and indexes and the
appraised value of purchased subsidiaries' title records and indexes at dates
of acquisition. The cost of maintaining, updating, and operating title
records is charged to income as incurred. Title records and indexes are not
being amortized since they have an indefinite life and do not diminish in
value.
(k) Goodwill-The costs of certain purchased subsidiaries in excess of related
book values (goodwill) at date of acquisition are being amortized against
operations principally over 40 years using the straight-line method.
Amortization of goodwill amounted to $3.1 in 1994, $3.2 in 1993 and $3.0 in
1992.
(l) Employee Benefit Plans- The Corporation has several pension plans
covering approximately half of its employees. The plans are defined benefit
plans pursuant to which pension payments are based primarily on years of
service and employee compensation near retirement. It is the Corporation's
policy to fund the plans' costs as they accrue. Plan assets are comprised
principally of bonds, common stocks and short-term investments.
The components of annual net periodic pension cost (credit) for the plans
consisted of the following:
Years Ended December 31,
---------------------------
1994 1993 1992
------- ------- -------
Service cost . . . . . . . . . . . . . . . . $ 3.4 $ 3.0 $ 2.9
Interest cost. . . . . . . . . . . . . . . . 7.1 6.7 6.2
Return on assets . . . . . . . . . . . . . . (5.2) (8.0) (10.5)
Net amortization and deferral. . . . . . . . (4.9) (1.7) 1.4
------- ------- -------
Net cost (credit). . . . . . . . . . . . . . $ .3 $ - $ -
======= ======= =======
The reconciliation of the funded status of the plans is as follows:
December 31,
------------------
1994 1993
------- -------
Actuarial present value of benefit obligations:
Vested benefit obligations . . . . . . . . . . . . . $ 83.4 $ 76.4
Nonvested benefit obligations. . . . . . . . . . . . 2.1 2.3
------- -------
Accumulated benefit obligations. . . . . . . . . . . 85.5 78.7
Excess of projected benefit obligations over
accumulated benefit obligations . . . . . . . . . . 15.0 14.2
------- -------
Projected benefit obligations. . . . . . . . . . . . . 100.5 92.9
Plans' assets at fair market value . . . . . . . . . . 106.7 104.2
------- -------
Plan assets in excess of projected benefit obligations 6.2 11.2
Unrecognized net loss. . . . . . . . . . . . . . . . . 5.5 .6
Prior service cost not yet recognized in net periodic pension cost .6 1.5
Remaining unrecognized transition net assets from
December 31, 1985. . . . . . . . . . . . . . . . . . (5.8) (7.4)
------- -------
Unfunded accrued pension asset recognized in the consolidated
balance sheet. . . . . . . . . . . . . . . . . . . . $ 6.5 $ 5.9
======= ========
The projected benefit obligations for the plans were determined using the
following assumptions at the dates shown:
December 31,
-----------------------
1994 1993
---------- ----------
Settlement discount rates. . . . . . . . . . . . . . .7.0 - 8.5% 7.5 - 8.0%
Rates of compensation increase . . . . . . . . . . . .4.0 - 5.5% 4.0 - 5.5%
Long-term rates of return on assets. . . . . . . . . .7.5 - 8.5% 8.0 - 9.0%
The Corporation has a number of profit sharing and other incentive
compensation programs for the benefit of a substantial number of its
employees. The costs related to such programs are summarized below:
Years Ended December 31,
---------------------------
1994 1993 1992
------- ------- -------
Employees Savings and Stock Ownership Plan. . $ 5.2 $ 1.8 $ 4.3
Other profit sharing. . . . . . . . . . . . . 3.2 3.0 2.5
Deferred and incentive compensation . . . . . $ 8.2 $ 12.9 $ 15.3
======= ======= =======
The Company adopted Financial Accounting Standard (FAS) No. 106
"Employers' Accounting for Post-retirement Benefits Other Than Pensions" for
health care and life insurance benefit plans as of January 1, 1993. A few
Old Republic subsidiaries make available post-retirement health benefits for
employees that retired prior to November 30, 1992. FAS No. 106 provides the
option of either recognizing the projected future costs of post-retirement
benefits as a liability, or amortizing such costs over the average remaining
life expectancy of plan participants. Previously such benefits were reported
as costs in the period during which they were provided. The Company
recognized the accumulated post-retirement benefit liability of $7.0 as of
January 1, 1993; this resulted in an after tax charge to net income of $4.6,
or $.08 per share ($.08 fully diluted).
The Company sponsors a leveraged Employee Savings and Stock Ownership Plan
(ESSOP) for a majority of its employees. The ESSOP acquired all of its stock
of the Company in 1987 and prior years. Accordingly, it is not required to
adopt the American Institute of Certified Public Accountants' SOP No. 93-6,
"Employers' Accounting for Employee Stock Ownership Plans." Shares' of the
Company stock owned by the ESSOP are released to participants based on a
formula prescribed by the Employee Retirement Income Security Act of 1974,
and dividends on released shares are allocated to participants as earnings.
The Company's contributions are based on a formula considering historical net
income per share. As of December 31, 1994, there were 22,256,680 Series "D"
Redeemable Preferred Shares and 479,449 Common Shares owned by the ESSOP of
which 5,877,584 Series "D" Redeemable Preferred Shares and 27,483 Common
Shares were unreleased and unallocated. There are no repurchase obligations
in existence. (See Note 3).
(m) Escrow Funds-Segregated cash deposit accounts and the offsetting
liabilities for escrow deposits in connection with Title Insurance Group real
estate transactions in the same amounts ($198.7 and $219.9 at December 31,
1994 and 1993, respectively) are not included as assets or liabilities in the
accompanying consolidated balance sheets as the escrow funds are not
available for regular operations.
(n) Earnings Per Share-Consolidated primary earnings per share are based upon
the weighted average number of shares outstanding during each year,
retroactively adjusted for all stock dividends and splits declared through
December 31, 1994. Dividend requirements of $5.1 in 1994, $5.2 in 1993 and
$6.0 in 1992 on preferred stock have been considered in per share
calculations. The average number of common shares used in 1994, 1993 and 1992
earnings per share calculations reflect the pro forma inclusion of 5,323,170,
5,476,047 and 5,704,688 incremental common shares, respectively, which would
be issued upon conversion and/or exercise of dilutive convertible preferred
and stock option shares. Fully diluted earnings per share are similarly
calculated with the inclusion of substantially all convertible securities and
stock options includable for each year; no such data is shown when the
calculations are anti-dilutive.
(o) Cash Flows-For purposes of the Consolidated Statements of Cash Flows, the
Company considers short-term investments, consisting of savings accounts,
money market funds, certificates of deposit, and commercial paper with
maturities of less than 90 days to be cash equivalents. These securities are
carried at cost which approximates fair value.
Supplemental cash flow information: Years Ended December 31,
----------------------------
1994 1993 1992
------- ------- -------
Cash paid during the year for:
Interest. . . . . . . . . . . . . . . . $ 19.9 $ 20.0 $ 16.1
Income taxes. . . . . . . . . . . . . . 61.5 54.1 54.0
------- ------- -------
$ 81.4 $ 74.1 $ 70.1
======= ======= =======
(p) Concentration of Credit Risk-Excluding U.S. government bonds and notes,
the Company is not exposed to any significant credit concentration risk.
(q) Statement Presentation-Amounts shown in the consolidated financial
statements and applicable notes are stated (except as otherwise indicated and
as to share data) in millions, which amounts may not add to totals shown due
to rounding. Necessary reclassifications are made in prior periods' financial
statements whenever appropriate to conform to the most current presentation.
Note 2-Investments - Bonds and other investments carried at $161.6 as of
December 31, 1994 were on deposit with governmental authorities by the
Corporation's insurance subsidiaries to comply with insurance laws.
Note 3-Debt and Debt Equivalents-Consolidated debt of Old Republic and its
subsidiaries is summarized below:
December 31
----------------------------------
1994 1993
--------------- ---------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ------ ------ ------
Commercial paper due within 180 days with an
average yield of 6.29% and 3.40% . . . . $ 83.2 $ 83.2 $ 49.6 $ 49.6
Convertible subordinated debentures maturing in
2002 at 5.75% (b). . . . . . . . . . . . 110.0 106.7 110.0 123.3
Debentures maturing in 2015 at 11.5%. . . 29.5 32.0 29.5 32.3
Debentures maturing in 2018 at 10.0%. . . 74.0 78.9 74.0 80.6
Other miscellaneous debt. . . . . . . . . 4.0 4.0 4.2 4.2
------ ------ ------ ------
Total debt. . . . . . . . . . . . . . . . 300.9 304.9 267.5 289.9
Redeemable preferred stock classified as a debt
equivalent See (a) below. . . . . . . . 13.8 13.8 15.1 15.1
------ ------ ------ ------
Total debt and debt equivalents . . . . . $314.7 $318.7 $282.7 $305.0
====== ====== ====== ======
The carrying amount of the Company's commercial paper borrowings
approximates its fair value. The fair value of publicly traded debt is based
on its quoted market price.
Scheduled maturities of the above debt (including redeemable preferred
stock classified as a debt equivalent see (a)below) at December 31, 1994 are
as follows: 1995: $92.1; 1996: $5.5; 1997: $4.2; 1998: $2.5; 1999: $4.2; 2000
and after $210.3. During 1994, 1993 and 1992, $19.8, $20.0 and $18.1,
respectively, of interest expense on debt was charged to consolidated
operations.
---------
(a) The Company has guaranteed bank loans (balance at December 31, 1994 was
$13.8) to a Trust established by the Old Republic Employees Savings and
Stock Ownership Plan ("ESSOP"). The loans have been used to fund the
purchase of Series "B" and Series "D" Redeemable Preferred Stock from
the Company by the trust for the original amount of the loans. The
Trust's loan principal repayments (currently scheduled at $6.1 in 1995,
$3.9 in 1996, $2.7 in 1997, and $1.0 in 1998) are expected to be met by
annual profit sharing contributions by the Corporation and its
participating subsidiaries, while interest payments are to be covered by
Trust income, including dividends on the Corporation's stock held by the
ESSOP. The interest rate on the Trust's loans of $13.8 is set every six
months and ranges from 1-1/4% above the prime rate to approximately 75%
thereof. See Notes 4a and 4b.
(b) Each one thousand dollar convertible debenture maturing in 2002, may be
converted at any time into 39.024 common shares.
Note 4-Shareholders' Equity - All common and preferred share data herein has
been retroactively adjusted as applicable for stock dividends or splits
declared through December 31, 1994.
(a) Preferred Stock-The following table shows certain information pertaining
to each of the Corporation's series of preferred shares issued and
outstanding:
Redeemable convertible Convertible Cumulative
---------------------- ----------------------- ---------
Preferred Stock Series: "B" "D" "E" "G"(1) "H"
--------- --------- ---------- --------- ---------
Annual cumulative dividend rate
per share. . . . . . . $ .148 $ .130 $ 1.00 $ (1) 8 3/4%
Conversion ratio of preferred into
common shares (2). . . 5 for 1 5 for 1 1 for 3.52 1 for .95 -
Conversion right begins 1994 Anytime Anytime Anytime -
Redemption and liquidation
value per share. . . . $ 2.47 $ 1.30 $ 33.50 (1) $ 25.00
Redemption beginning in year 1994 1987 1995 (1) (4)
Total redemption value (millions) $ .95 $ 29.73 $ 3.59 (1) 54.80
Vote per share. . . . . one one one one -
Shares outstanding:
December 31, 1993(3) . 386,075 22,874,402 118,882 51,546 2,300,000
December 31, 1994(3) . 386,075 22,874,402 107,278 72,852 2,192,100
========= ========== ========== ========== ==========
----------
(1)The Corporation has authorized up to 1,000,000 shares of Series G
Convertible Preferred Stock for issuance pursuant to the Corporation's
Stock Option Plan. Series G has been issued under two different
designations; the most recent designation being Series G-2 (except as
otherwise stated, Series "G" and Series "G-2" are collectively referred to
as Series "G"). Management believes this designation will be the source
of all foreseeable issuances of Series G stock. Each share of Series G
pays a floating rate dividend based on the prime rate of interest. At
December 31, 1994, the annual dividend rate for Series G and Series G-2
was $.57 per share and $1.58 per share, respectively. Each share of
Series G is convertible at any time, after being held six months, into
0.95 shares of Common Stock (See 4(d) below). Series G shares may be
redeemed at the Corporation's sole option five years after their
issuance.
(2)In the event of a merger in which the Corporation is not the survivor,
each series of Preferred Stock must be redeemed at the above redemption
value per share (plus 10% in the case of Series "B"). In the event of
certain defined Business Combinations or the acquisition of 20% or more of
a class of the Corporation's voting securities in certain circumstances,
the Series D Preferred Stock is convertible into common shares at a ratio
ranging from 5 for 1 to 2.5 for 1.
(3)Series "B" and "D" preferred stock, substantially all of which are held by
the Corporation's employee benefit plans, are adjustable proportionately
as to redemption value, dividend rate, and number of shares to reflect any
stock dividends or splits declared on the Corporation's common stock, and
has a preference as to dividend payments and upon liquidation of the
Corporation. Series "E" preferred stock has preferences as to dividend
payments and upon liquidation its conversion ratio is adjustable
proportionately in the event stock dividends or splits are declared on the
common stock.
(4)On or after December 13, 1996 redeemable at the option of the Corporation,
in whole or in part, at a redemption price of $25.00 per share.
(b) Cash Dividend Restrictions-The payment of cash dividends by the
Corporation is principally dependent upon the amount of its insurance
subsidiaries' statutory policyholders' surplus available for dividend
distribution. The insurance subsidiaries' ability to pay cash dividends to
the Corporation is in turn generally restricted by law or subject to approval
of the insurance regulatory authorities of the states in which they are
domiciled. These authorities recognize only statutory accounting practices
for determining financial position, results of operations, and the ability of
an insurer to pay dividends to its shareholders. Based on 1994 data, the
maximum amount of dividends payable to the Corporation by its insurance and
other wholly-owned subsidiaries during 1995 without the prior approval of
their respective regulatory authorities is approximately $167.1. However,
management does not expect to distribute all such dividends since reinvested
earnings are the Corporation's major source of capital to promote its growth
and support its obligations to policyholders.
(c) Debt Restrictions-Under the most restrictive covenants, the terms of Old
Republic's guaranties relative to loan agreements described in Note 3(a)
provide that while loans under such agreements are outstanding, Old Republic
will maintain a minimum consolidated tangible net worth (excluding goodwill
and net unrealized investment gains or losses, but including title plants and
records) of at least $400.0. Such agreements also, among other things,
restrict Old Republic from permitting "Debt" to exceed 25% of its
consolidated tangible net worth (as adjusted for goodwill and net unrealized
investment gains or losses on equity securities) without approval of the
lenders.
(d) Stock Option Plans-The Corporation has had non-qualified, stock option
plans (the 1979, 1985 and 1992 plans) for its key employees and those of its
eligible subsidiaries since 1979. The plans provide for the issuance of
options for up to 5% of the Old Republic common stock issued and outstanding
at any one time. The term of each option is generally 10 years from the date
of grant. Under ordinary circumstances, options may be exercised to the
extent of 10% of the number of shares covered thereby on and after the date
of grant and cumulatively to the extent of an additional 10% on and after
each of the first through ninth anniversaries of the date of grant. The
Corporation may extend 15 year loans at a prevailing market rate of interest
for a portion of the exercise price. Amendments to the plans also enable
optionees to, alternatively, exercise their options into Series "G" or Series
"G-2" Convertible Preferred Stock. The exercise of options into such Series
"G" or Series "G-2" Convertible Preferred stock reduces by 5% the number of
equivalent common shares which would have otherwise been obtained from the
exercise of options.
Under the 1979 plan, the employees' right to exercise their options is
accelerated if the Corporation is dissolved or liquidated, merges or
consolidates with another company and the Corporation is not the surviving
corporation, or more than 50% of the members of the Board of Directors of the
Corporation change in any one year unless one or more of the new directors
was nominated by the Board of Directors of the Corporation.
Under the 1985 and 1992 plans, in the event the market price of Old
Republic common stock reaches a preestablished value ("vesting acceleration
price"), optionees may exercise their options to the extent of 10%
of the number of shares covered by the option for each year that the optionee
has been employed by the Corporation or its subsidiaries.
Changes in stock options and related information are reflected in the
following table (See Note 4(a)(1) above).
As of and for the Years Ended December 31,
-----------------------------------------------------------------------------------------
1992 Plan 1985 Plan 1979 Plan
--------------------------- --------------------------- ---------------------------
1994 1993 1992 1994 1993 1992 1994 1993 1992
------- ------- ------- ------- ------- ------- ------- ------- -------
Options outstanding 626,925 633,575 25,000 718,710 774,506 851,145 - 16,610 217,349
Price range:
High . . . . . $26.13 $26.13 $20.50 $12.62 $12.62 $ 12.62 $ - $ 5.14 $ 8.74
Low. . . . . . $20.50 $20.50 $20.50 $ 8.74 $ 8.74 $ 8.74 $ - $ 5.14 $ 5.14
Shares exercisable 127,805 65,858 2,500 628,433 651,644 696,057 - 16,610 206,738
Options granted. - 610,775 25,000 - - - - - -
Price of options granted:
High . . . . . $ - $26.13 $20.50 $ - $ - $ - $ - $ - $ -
Low. . . . . . $ - $25.13 $20.50 $ - $ - $ - $ - $ - $ -
Vesting acceleration price:
High . . . . . $39.19 $39.19 $30.75 $18.93 $18.93 $ 18.93 $ N/A $ N/A $ N/A
Low. . . . . . $30.75 $30.75 $30.75 $13.11 $13.11 $ 13.11 $ N/A $ N/A $ N/A
Options cancelled or forfeited 6,650 2,000 - 5,687 526 15,536 - 184 971
Options exercised - 200 - 50,109 76,113 412,939 16,610 200,555 232,098
Average price of options
exercised. . . $ - $25.13 $ - $11.11 $11.42 $ 11.14 $ 5.14 $ 7.13 $ 6.55
======= ======= ======= ======= ======= ======== ======= ======= =======
Option prices represent the per share market price on the date of grant.
No charge is made to earnings in connection with the granting or exercise of
nonqualified stock options.
In conjunction with the purchase or merger of various companies, the
Corporation has assumed the stock option obligations under various qualified
and nonqualified stock option plans previously adopted by such companies.
These plans were terminated as of the merger dates, and existing options at
that date became exercisable into Old Republic common shares at their
original price adjusted for the appropriate exchange ratios pertaining to
each merger. At December 31, 1994, options for 5,576 shares were outstanding
and exercisable under the remaining plan at a price of $10.00 per share.
Options for 18,246; 24,568; and 74,440 were exercised for a total
consideration of approximately $0.1, $0.1, and $0.5 during 1994, 1993 and
1992, respectively.
(e) Common Stock-There were 250,000,000 shares of common stock authorized at
December 31, 1994. At the same date, there were 50,000,000 shares of Class
"B" common stock authorized but none were issued or outstanding. Class "B"
common shares have the same rights as common shares except for being entitled
to 1/10th of a vote per share.
(f) Undistributed Earnings-The equity of the Corporation in the undistributed
earnings, determined in accordance with generally accepted accounting
principles, and in the net unrealized investment gains (losses) of its
respective subsidiaries at December 31, 1994 amounted to $1,020.9 and
$(11.3), respectively. Cash dividends declared during 1994, 1993 and 1992,
to the Corporation by its subsidiaries amounted to $55.4, $53.9 and $50.6,
respectively.
(g) Treasury Stock-A total of 5,540,360 common shares issued and outstanding
are held by consolidated affiliates. See "Related Party Transactions" herein.
(h) Statutory Data-The shareholders' equity and net income, determined in
accordance with statutory accounting practices, of the Corporation's
insurance subsidiaries was as follows at the dates and for the periods shown:
Shareholders' Equity Net Income
------------------- ------------------------------
December 31, Years Ended December 31,
------------------- ------------------------------
1994 1993 1994 1993 1992
-------- -------- -------- -------- --------
General Insurance Group . . . $1,016.2 $ 934.5 $ 116.2 $ 93.2 $ 109.7
Title Insurance Group . . . . 123.5 122.4 6.0 19.2 14.6
Mortgage Guaranty Group . . . 107.6 104.6 74.7 56.3 38.1
Life Insurance Group. . . . . $ 82.5 $ 84.9 $ 6.9 $ 3.6 $ 8.9
======== ======== ======== ======== ========
Note 5-Commitments and Contingent Liabilities:
(a) Reinsurance-In order to maintain premium production within their capacity
and to limit maximum losses for which they might become liable under policies
underwritten, Old Republic's insurance subsidiaries, as is the common
practice in the insurance industry, cede all or a portion of their premiums
and liabilities on certain classes of business to other insurers and
reinsurers. Although the ceding of insurance does not ordinarily discharge an
insurer from liability to a policyholder, it is industry practice to
establish the reinsured part of risks as the liability of the reinsurer. Old
Republic also employs retrospective premium, contingent commission, and
profit sharing arrangements for parts of its business in order to minimize
losses for which it might become liable under insurance policies underwritten
by it. To the extent that any reinsurance companies or retrospectively rated
risks or producers might be unable to meet their obligations under existing
reinsurance or retrospective insurance and agency agreements, Old Republic
would be liable for the defaulted amounts. As deemed necessary, reinsurance
ceded to other companies are secured by letters of credit, cash, and/or
securities.
Reinsurance protection for General Insurance operations generally limits
the net loss on any one risk as follows (in thousands): fire and other
physical perils-$300; accident and health-$15; workers' compensation-$1,000;
other liability-$600; and loan credit guaranty-$200. Title insurance risk
assumptions, based on the title insurance subsidiary's financial resources,
are currently limited to $25,000 as to any one policy. A substantial portion
of the mortgage guaranty insurance business is retained, with the exposure on
any one risk currently averaging less than $20. The maximum amount of
ordinary life insurance retained on any one life by the Life Insurance Group
(without reinsurance) is $250.
Most of the reinsurance ceded by the Corporation's insurance subsidiaries
in the ordinary course of business is placed on a quota share or excess of
loss basis. Under quota share reinsurance, the companies remit an agreed upon
percentage of their premiums written to assuming companies and are reimbursed
for a pro-rata share of claims and commissions incurred and for a ceding
commission to cover expenses and costs for underwriting and claim services
performed. Under excess of loss reinsurance agreements, the companies are
generally reimbursed for losses exceeding contractually agreed-upon levels.
The following information relates to reinsurance and related data for the
General Insurance, Mortgage Guaranty and Life Insurance Groups for the three
years ended December 31, 1994. For the years 1992 to 1994, reinsurance
transactions of the Title Insurance Group have not been material.
Years Ended December 31,
--------------------------------
1994 1993 1992
--------- --------- ---------
General Insurance Group
Written premiums:direct . . . . . . . . $ 1,170.2 $ 1,160.7 $ 1,100.4
assumed . . . . . . . 68.6 111.5 74.7
ceded . . . . . . . . $ 387.3 $ 396.1 $ 375.0
========= ========= =========
Earned premiums:direct. . . . . . . . . $ 1,174.6 $ 1,170.4 $ 1,086.6
assumed . . . . . . . . 78.1 107.6 82.4
ceded . . . . . . . . . $ 388.6 $ 411.4 $ 362.6
========= ========= =========
Claims ceded. . . . . . . . . . . . . . $ 277.2 $ 390.9 $ 168.7
========= ========= =========
Mortgage Guaranty Group
Written premiums:direct . . . . . . . . $ 138.4 $ 125.7 $ 88.1
assumed. . . . . . . . - - -
ceded . . . . . . . . $ 3.2 $ 4.6 $ 6.8
========= ========= =========
Earned premiums:direct. . . . . . . . . $ 138.3 $ 102.5 $ 70.2
assumed . . . . . . . . - - -
ceded . . . . . . . . . $ 3.8 $ 5.7 $ 8.5
========= ========= =========
Claims ceded. . . . . . . . . . . . . . $ 2.3 $ 3.3 $ 3.5
========= ========= =========
Mortgage guaranty insurance in force as of
December 31:direct. . . . . . . . . . . $31,415.8 $25,372.5 $18,591.8
assumed . . . . . . . . . . .1 .4 .6
ceded . . . . . . . . . . . $ 1,010.5 $ 1,346.8 $ 1,945.5
========= ========= =========
Life Insurance Group
Written premiums:direct . . . . . . . . $ 80.4 $ 64.5 $ 59.0
assumed. . . . . . . . .3 .3 .4
ceded. . . . . . . . . $ 43.3 $ 33.7 $ 34.6
========= ========= =========
Earned premiums:direct. . . . . . . . . $ 80.6 $ 71.0 $ 67.4
assumed . . . . . . . . .3 .3 .4
ceded . . . . . . . . . $ 41.0 $ 38.3 $ 38.5
========= ========= =========
Life insurance in force
as of December 31:direct. . . . . . . $ 8,742.4 $ 8,848.7 $ 7,669.6
assumed . . . . . . - - -
ceded . . . . . . . $ 4,318.9 $ 4,561.9 $ 4,154.1
========= ========= =========
Disability/accident and health insurance premiums
ceded on a quota share basis:
To affiliated companies . . . . . . . $ 3.0 $ 1.1 $ 2.3
To unaffiliated companies . . . . . . 24.5 18.1 18.8
--------- --------- ---------
Total. . . . . . . . . . . . . . . . $ 27.6 $ 19.3 $ 21.1
========= ========= =========
Percentage of direct and assumed premiums 49.9% 53.7% 57.6%
========= ======== =========
(b) Leases-Some of the Corporation's subsidiaries maintain their offices in
leased premises. Certain of these leases provide for the payment of real
estate taxes, insurance, and other operating expenses. At December 31, 1994,
aggregate minimum rental commitments (net of expected sub-lease receipts)
under noncancellable operating leases of $106.2 are summarized as follows:
1995: $26.1; 1996: $19.8; 1997: $14.2; 1998: $10.1; 1999: $7.0; 2000 and
after: $28.7.
(c) General-In the normal course of business, the Corporation and its
subsidiaries are subject to various contingent liabilities, including
possible income tax assessments resulting from tax law interpretations or
issues raised by taxing authorities in their regular examinations. Management
does not anticipate any significant losses or costs to result from any known
or existing contingencies.
(d) Legal Proceedings-There are no material legal proceedings other than
those arising in the normal course of business and which generally pertain to
claim matters related to insurance policies and contracts issued by the
Corporation's insurance subsidiaries.
Note 6-Consolidated Quarterly Results-Unaudited - Old Republic's consolidated
quarterly operating data for the two years ended December 31, 1994 is
presented below. In the opinion of management, all adjustments consisting of
normal recurring adjustments necessary to a fair presentation of quarterly
results have been reflected in the data which follows. It is also
management's opinion, however, that quarterly operating data for insurance
enterprises is not indicative of results to be achieved in succeeding
quarters or years. The long-term nature of the insurance business, seasonal
patterns in premium production and incidence of claims, and changes in yields
on invested assets are some of the factors necessitating a review of
operating results, changes in shareholders' equity, and cash flows for
periods of several years to obtain a proper indicator of performance. The
data below should be read in conjunction with the "Management Analysis of
Financial Position and Results of Operations":
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
---------- ---------- ---------- -----------
Year Ended December 31, 1994:
Operating Summary:
Net premiums, fees, and other income $ 379.5 $ 368.9 $ 346.1 $ 348.6
Net investment income and realized gains 58.3 57.7 57.6 61.2
Total revenues. . . . . . . . . . 438.0 426.9 403.9 410.0
Benefits, claims, and expenses. . 387.7 373.1 347.2 345.0
Net income. . . . . . . . . . . . $ 34.0 $ 36.0 $ 37.8 $ 43.0
========== ========== ========== ==========
Net income per share:Primary. . . $ .57 $ .61 $ .64 $ .73
Fully Diluted. . . $ .55 $ .58 $ .61 $ .70
========== ========== ========== ==========
Average common and equivalent shares outstanding:
Primary . . . . . . . . . . . . . 57,264,289 57,264,182 57,219,840 57,124,416
========== ========== ========== ==========
Fully Diluted . . . . . . . . . . 61,693,146 61,692,856 61,669,829 61,588,211
========== ========== ========== ==========
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
---------- ---------- ---------- ----------
Year Ended December 31, 1993:
Operating Summary:
Net premiums, fees, and other income $ 339.2 $ 346.6 $ 374.7 $ 414.3
Net investment income and realized gains 63.7 63.9 61.4 71.5
Total revenues. . . . . . . . . . 403.1 410.8 436.2 486.0
Benefits, claims, and expenses. . 358.5 347.2 376.9 410.1
Income before cumulative effect of accounting
changes . . . . . . . . . . . . . 31.4 43.0 41.4 50.3
Cumulative effect of accounting changes 8.6 - - -
Net income. . . . . . . . . . . . $ 40.1 $ 43.0 $ 41.4 $ 50.3
========== ========== ========== ==========
Net income per share:
Primary:
Before cumulative effect of accounting changes $ .53 $ .73 $ .70 $ .86
Cumulative effect of accounting changes .15 - - -
Net Income. . . . . . . . . . . . $ .68 $ .73 $ .70 $ .86
========== ========== ========== ==========
Fully Diluted:
Before cumulative effect of accounting changes $ .51 $ .70 $ .67 $ .81
Cumulative effect of accounting changes .14 - - -
Net Income. . . . . . . . . . . . $ .65 $ .70 $ .67 $ .81
========== ========== ========== ==========
Average common and equivalent shares outstanding:
Primary . . . . . . . . . . . . . 57,121,667 57,148,698 57,180,690 57,224,970
========== ========== ========== ==========
Fully Diluted . . . . . . . . . . 61,601,784 61,582,297 61,620,439 61,654,879
========== ========== ========== ==========
Note 7-Information About Segments of Business - 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 generally accepted accounting principles
("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, although
disability/accident & health coverages may be written directly or indirectly
through reinsurance in either the General or Life Insurance segments.
In computing the profit or loss before taxes for each segment, the
following items have not been added or deducted: general corporate revenues
and expenses, parent company interest expense, income taxes, and equity in
operating results of, or dividends from, unconsolidated subsidiaries and
affiliates. To reconcile the total assets shown for the General, Title,
Mortgage Guaranty and Life Groups with total consolidated assets at December
31, 1994 and 1993, adjustments must be made for the parent company assets of
$1,745.2 and $1,650.1, and consolidating eliminations of $2,143.0 and
$2,022.9, respectively.
Revenues and assets connected with foreign operations are not significant
in relation to consolidated totals.
Net Revenues
-------------------------------------------------------------------------------
Years Ended December 31,
----------------------------------
1994 1993 1992
--------- --------- ---------
General Insurance Group:
Net premiums earned:
Liability coverages . . . . . . . . . . $ 509.8 $ 517.5 $ 477.2
Property and other coverages. . . . . . 354.2 349.0 329.1
Net investment (a) and other income . . . 187.4 192.0 195.4
--------- --------- ---------
Total. . . . . . . . . . . . . . . . . 1,051.4 1,058.5 1,001.8
--------- --------- ---------
Title Insurance Group:
Net premiums earned . . . . . . . . . . . 244.4 249.6 206.1
Title, escrow and other fees. . . . . . . 140.2 199.7 188.4
--------- --------- ---------
Sub-total . . . . . . . . . . . . . . . 384.7 449.4 394.5
Net investment (a) and other income . . . 20.0 18.5 18.3
--------- --------- ---------
Total. . . . . . . . . . . . . . . . . 404.7 467.9 412.8
--------- --------- ---------
Mortgage Guaranty Group:
Net premiums earned . . . . . . . . . . . 134.5 96.8 61.6
Net investment (a) and other income . . . 23.8 21.8 17.1
--------- --------- ---------
Total. . . . . . . . . . . . . . . . . 158.3 118.6 78.8
--------- --------- ---------
Life Insurance Group:
Annuities:
Net premiums earned . . . . . . . . . . - .1 .2
Net investment income . . . . . . . . . 6.4 6.5 7.7
--------- --------- ---------
Sub-total . . . . . . . . . . . . . . . 6.4 6.6 7.9
--------- --------- ---------
Credit and other life and disability:
Net premiums earned . . . . . . . . . . 40.0 32.9 29.0
Net investment (a) and other income . . 9.2 9.9 23.0
--------- --------- ---------
Sub-total . . . . . . . . . . . . . . . 49.3 42.9 52.1
--------- --------- ---------
Total. . . . . . . . . . . . . . . . . 55.7 49.5 60.0
--------- --------- ---------
Other Operations - Net (b): . . . . . . . .9 1.3 .6
--------- --------- ---------
Consolidated sub-total. . . . . . . . . 1,671.2 1,696.0 1,554.2
Net Realized Gains. . . . . . . . . . . . 7.7 40.2 62.8
--------- --------- ---------
Consolidated. . . . . . . . . . . . . . $ 1,679.0 $ 1,736.3 $ 1,617.0
========= ========= =========
Income (Loss) Before Taxes (c)
-------------------------------------------------------------------------------
Years Ended December 31,
---------------------------------
1994 1993 1992
--------- --------- ---------
General Insurance Group:
Underwriting/service income (loss):
Liability coverages . . . . . . . . . $ (65.0) $ (67.4) $ (71.4)
Property and other coverages. . . . . 45.4 21.9 16.8
Net investment income (a) . . . . . . . 173.8 170.1 173.3
--------- --------- ---------
Total . . . . . . . . . . . . . . . . . 154.2 124.5 118.7
--------- --------- ---------
Title Insurance Group:
Underwriting/service income (loss) . . (16.9) 16.2 11.4
Net investment income (a) . . . . . . . 16.7 15.8 15.5
--------- --------- ---------
Total . . . . . . . . . . . . . . . . (.2) 32.1 26.9
--------- --------- ---------
Mortgage Guaranty Group:
Underwriting/service income . . . . . . 57.7 43.8 30.0
Net investment income (a) . . . . . . . 20.6 17.5 13.7
--------- --------- ---------
Total . . . . . . . . . . . . . . . . 78.3 61.3 43.8
--------- --------- ---------
Life Insurance Group:
Annuities . . . . . . . . . . . . . . . 2.4 (.2) .6
Other coverages and net investment income (a) 3.9 6.7 18.2
--------- --------- ---------
Total . . . . . . . . . . . . . . . . 6.4 6.5 18.9
--------- --------- ---------
Other Sources - Net (b):. . . . . . . . (20.6) (21.4) (20.5)
--------- --------- ---------
Consolidated sub-total. . . . . . . . 218.1 203.0 187.9
Net Realized Gains. . . . . . . . . . . 7.7 40.2 62.8
--------- --------- ---------
Consolidated. . . . . . . . . . . . . $ 225.8 $ 243.3 $ 250.7
========= ========= =========
In the above tables, net premiums earned on a GAAP basis differ from
statutory amounts as a result of differences in the 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./(c) Before
cumulative effect of accounting changes as indicated in notes 1(h) and (l).
Assets At Year End
-----------------------------------------------------------------------------
December 31,
--------------------------
1994 1993
--------- ---------
General Insurance Group . . . . . . . . . . . . $ 5,199.9 $ 5,075.1
Title Insurance Group . . . . . . . . . . . . . 402.4 402.7
Mortgage Guaranty Group . . . . . . . . . . . . 487.8 408.3
Life Insurance Group. . . . . . . . . . . . . . 322.7 336.8
Consolidated. . . . . . . . . . . . . . . . . . $ 6,262.9 $ 6,098.3
========= =========
Note 8-Related Party Transactions - At December 31, 1994 and 1993, the
Corporation owned 98.85% of the non-voting common shares, and 40% of the
voting common and preferred shares of the American Business & Mercantile
Insurance Group, Inc., ("AB&M Group" or "Group"), an affiliated insurance
holding company engaged in the property and liability reinsurance business.
As of the same dates, the American Business & Mercantile Insurance Mutual,
Inc. ("Mutual"), a property & liability mutual insurer owned by its
policyholders, held directly or through a subsidiary .04% of the non-voting
common shares and 60% of the Group's voting common and preferred shares. At
both dates, 1.11% of the Group's non-voting common shares were held by public
shareholders.
Pursuant to underwriting and investment management agreements, Old
Republic receives management fees for administering the affairs of the
Group's reinsurance subsidiary and those of the Mutual. Pursuant to
reinsurance treaties, the Group and the Mutual are quota share participants
in various types of primary or assumed reinsurance contracts produced through
Old Republic underwriting facilities. Fees received in the past three years
by Old Republic were immaterial. The following table shows reinsurance
cessions, retrocessions, and assumptions to or from the Group's reinsurance
subsidiary and the Mutual for the last three years.
Ceded to Group Assumed from Mutual Ceded to Mutual
---------------------- -------------------- ----------------------
1994 1993 1992 1994 1993 1992 1994 1993 1992
------ ------ ------ ------ ------ ----- ------ ------ ------
Premiums written . $ 12.5 $ 11.2 $ 10.7 $ - $ - $ (.2) $ 3.6 $ 3.6 $ 3.6
Commissions and fees .7 .6 .6 - - (.1) - - -
Losses and loss expenses 14.8 9.9 12.0 (.1) (.3) (.6) 4.3 3.5 1.2
Loss and loss expense
reserves. . . . . 51.1 46.4 46.4 20.2 22.5 25.6 6.9 5.6 5.6
Unearned premiums. $ .9 $ .7 $ .4 $ - $ - $ - $ .3 $ .2 $ .2
====== ====== ====== ====== ===== ===== ====== ====== ======
Certain subsidiaries of the Company have sold various accounts receivable
to a finance company subsidiary of the Mutual. Total receivables sold as of
December 31, 1994 and 1993 amounted to approximately $6.6 and $8.5,
respectively.
At December 31, 1994 and 1993, the Group held approximately 8.0% of Old
Republic's issued and outstanding common shares. For financial accounting
purposes only, 4,439,267 of such shares have been treated as treasury shares
at each respective date in consolidating the Group's accounts with those of
the Corporation.
In the normal course of business, the Company cedes, on the same terms as
apply to unrelated reinsurers, certain parts of its outgoing reinsurance to
a foreign reinsurer in which it has an equity interest. Total premiums ceded
to this reinsurer amounted to approximately $6.1 in 1994, $5.6 in 1993 and
$5.8 in 1992. As of December 31, 1994 and 1993, total premium and loss
reserve credits taken on account of cumulative cessions aggregated $67.1 and
$63.7, respectively, all of which credits were collateralized by cash,
investments and funds held amounting to $69.0 and $70.7, respectively.
At December 31, 1994, the Corporation owned 90% of the voting common stock
of Employers General Insurance Group, Inc. ("EGI") an affiliated insurance
holding company engaged in the property and liability insurance and
reinsurance business, primarily in Texas. At such date, 10% of EGI's voting
common stock was held by public shareholders.
Pursuant to a branch management agreement, EGI supervises the solicitation
and underwriting of all lines of insurance that two insurance subsidiaries of
Old Republic are authorized to write. EGI's Texas domiciled insurance
subsidiary has entered into a quota share reinsurance treaty with an
insurance subsidiary of Old Republic. Under the reinsurance treaty, EGI's
insurance subsidiary reinsures the net retained amount of business produced
by EGI and its subsidiaries.
EGI commenced operations in May, 1992, its insurance subsidiary received
its license in December, 1993. The following table is a summary of
intercompany transactions:
Ceded to EGI
---------------------------
1994 1993 1992
------- ------- ------
Premiums written. . . . . . . . . . . . . . . $ 29.7 $ 47.6 $ -
Losses and loss expenses. . . . . . . . . . . 22.6 30.4 -
Loss and loss expense reserves. . . . . . . . 33.3 22.9 -
Unearned premiums . . . . . . . . . . . . . . $ 12.3 $ 13.1 $ -
======= ======= ======
EGI has also entered into an investment counsel agreement with Old
Republic, pursuant to which Old Republic provides investment advice,
accounting services and assistance to EGI in executing purchases and sales of
investments. Fees received by Old Republic were immaterial.
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------------------------------------------------
To the Board of Directors and Shareholders of
Old Republic International Corporation
Chicago, Illinois
We have audited the accompanying consolidated balance sheets of Old
Republic International Corporation and subsidiaries (the "Company") as of
December 31, 1994 and 1993, and the related consolidated statements of
income, preferred stock and common shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Old
Republic International Corporation and subsidiaries as of December 31, 1994
and 1993, and the consolidated results of their operations and their cash
flows for each of the three years in the period ended December 31, 1994 in
conformity with generally accepted accounting principles.
As discussed in footnote 1(g), 1(h) and 1(l) to the consolidated
financial statements, the Company changed its method of accounting for ceded
reinsurance, income taxes and post retirement benefits other than pensions in
1993.
Coopers & Lybrand L.L.P.
Chicago, Illinois
March 14, 1995
Item 9-Disagreements on Accounting and Financial Disclosure
None.
PART III
Item 10-Directors and Executive Officers of the Registrant
Omitted pursuant to General Instruction G(3). The Company will file with
the Commission prior to April 1, 1995 a definitive proxy statement pursuant
to Regulation 14A in connection with its Annual Meeting of shareholders to be
held on May 12, 1995. See also Item 4(a) in Part I of this report. A list of
Directors appears on the "Signature" page of this report.
Item 11-Executive Compensation
Omitted pursuant to General Instruction G(3). The Company will file with
the Commission prior to April 1, 1995 a definitive proxy statement pursuant
to Regulation 14A in connection with its Annual Meeting of shareholders to be
held on May 12, 1995.
Item 12-Security Ownership of Certain Beneficial Owners and Management
Omitted pursuant to General Instruction G(3). The Company will file with
the Commission prior to April 1, 1995 a definitive proxy statement pursuant
to Regulation 14A in connection with its Annual Meeting of shareholders to be
held on May 12, 1995.
Item 13-Certain Relationships and Related Transactions
Omitted pursuant to General Instruction G(3). The Company will file with
the Commission prior to April 1, 1995 a definitive proxy statement pursuant
to Regulation 14A in connection with its Annual Meeting of shareholders to be
held on May 12, 1995.
PART IV
Item 14-Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)Documents filed as a part of this report:
1. Financial statements: See Item 8, Index to Financial Statements.
2. Financial statement schedules will be filed on or before April 30,
1995 under cover of Form 8.
3. See exhibit index on page 51 of this report.
(b)Reports on Form 8-K:
1. No reports on Form 8-K were filed during the fourth quarter of 1994.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 (Name, Title or
Principal Capacity, and Date).
(Registrant):Old Republic International Corporation
By : ___/s/ A. C. Zucaro ______________________ ___3/15/95___
A. C. Zucaro, Chairman of the Board, Date
Chief Executive Officer, President and Director
By : ___/s/ Paul D. Adams____________________ ___3/15/95___
Paul D. Adams, Senior Vice President, Date
Chief Financial Officer and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated (Name, Title or
Principal Capacity, and Date).
_____/s/ A.C. Zucaro__________ _____/s/ A.C. Zucaro___________
Anthony F. Colao, Director* John W. Popp, Director*
Senior Vice President
_____/s/ A.C. Zucaro__________ _____/s/A.C.Zucaro_____________
John C. Collopy, Director* William A. Simpson, Director*
President of Republic Mortgage
Insurance Company
_____/s/ A.C. Zucaro__________ _____/s/A.C.Zucaro_____________
Jimmy A. Dew, Director* Arnold L. Steiner, Director*
Executive Vice President of Republic
Mortgage Insurance Company
_____/s/ A.C. Zucaro__________ _____/s/A.C.Zucaro_____________
Darrel M. Holt, Director* William R. Stover, Director*
_____/s/ A.C. Zucaro__________ _____/s/A.C.Zucaro____________
Kurt W. Kreyling, Director* David Sursa, Director*
_____/s/ A.C. Zucaro__________ _____/s/A.C.Zucaro___________
Peter Lardner, Director* William G. White, Jr., Director*
President of Bituminous
Casualty Corporation
_____/s/ A.C. Zucaro__________
Wilbur S. Legg, Director*
* By/S/A. C. Zucaro
Attorney-in-fact
Date: March 15, 1995
EXHIBIT INDEX
An index of exhibits required by item 601 of Regulation S-K follows:
(3) Articles of incorporation and by-laws.
(A) Restated Certificate of Incorporation, as amended.
(B) * By-laws, as amended (Exhibit 3(b) to Registrant's Annual Report on
Form 10-K for 1993).
(4) Instruments defining the rights of security holders, including
indentures.
(A) * Certificates of Designations, as amended, with respect to Series B
Cumulative Convertible Preferred Stock, Series D Cumulative
Convertible Preferred Stock, Series E Cumulative Convertible
Preferred Stock, Series G Convertible Preferred Stock, Series G-2
Convertible Preferred Stock and Series H Cumulative Preferred
Stock.
(B) * Form of Indenture dated June 1, 1985 between Old Republic
International Corporation and Morgan Guaranty Trust Company of New
York, as Trustee, regarding the 11 1/2% Sinking Fund Debentures due
2015 (Exhibit 4.3 to Form S-3 Registration Statement No. 2-98167).
(C) * Form of Indenture dated as of January 15, 1988 between Old Republic
International Corporation and Morgan Guaranty Trust Company of New
York, as Trustee, regarding the 10% Sinking Fund Debentures due 2018
(Exhibit 4(D) to Registrant's Annual Report on Form 10-K for 1987).
(D) * Agreement to furnish certain long term debt instruments to the
Securities & Exchange Commission upon request (Exhibit 4(D) on Form
8 dated August 28, 1987).
(E) * Rights Agreement dated as of June 26, 1987 between Old Republic
International Corporation and Morgan Shareholder Services Trust
Company (Exhibit 4 to Registrant's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1987).
(F) * Form of Indenture dated as of August 15, 1992 between Old Republic
International Corporation and Wilmington Trust Company, as Trustee,
regarding the 5 3/4% Convertible Subordinated Debentures due August
15, 2002. (Exhibit 4(G) to Registrant's Annual Report on Form 10-K
for 1993).
(10) Material contracts.
(A) * Copy of Old Republic International Corporation Employees Savings and
Stock Ownership Plan (Exhibit 10(A) to Registrant's Annual Report on
Form 10-K for 1991).
(B) Form 11 - K Annual Report of the Old Republic International
Employees Savings and Stock Ownership Plan for the year ended
December 31, 1994 (To be filed by amendment on Form 10-K).
** (C) * Copy of Old Republic International Corporation Key Employees
Performance Recognition Plan, as restated and amended (Exhibit 10(C)
to Registrant's Annual Report on Form 10-K for 1991).
** (D) * Copy of Old Republic International Corporation Non-qualified Stock
Option Plan (Exhibit to Form S-8 Registration Statement No.
2-66302).
** (E) * Amendments to Old Republic International Corporation Non-qualified
Stock Option Plan (Exhibit 10(E) to Registrant's Annual Report on
Form 10-K for 1991).
** (F) * 1985 Old Republic International Corporation Non-qualified Stock
Option Plan A (Exhibit 10.1 to Form S-3 Registration Statement No.
2-98166).
** (G) * Amendments to 1985 Old Republic International Corporation
Non-qualified Stock Option Plan A (Exhibit 10(G) to Registrant's
Annual Report on Form 10-K for 1991).
(Exhibit Index, Continued)
(10) Material contracts (Continued)
** (H) * 1985 Old Republic International Corporation Non-qualified Stock
Option Plan B (Exhibit 10.2 to Form S-3 Registration Statement No.
2-98166).
** (I) * 1990 Old Republic International Corporation Non-qualified Stock
Option Plan (Exhibit 10 to Form S-8 Registration Statement No.
33-37692).
** (J) * 1992 Old Republic International Corporation Non-qualified Stock
Option Plan (Exhibit 10 to Form S-8 Registration Statement No.
33-49646).
(K) * Old Republic International Corporation Employees Retirement Plan
(Exhibit 10(J) to Registrant's Annual Report on Form 10-K for 1991).
** (L) * Old Republic International Corporation Executives Excess Benefits
Pension Plan (Exhibit 10.16 to Registration Statement No. 2-95243).
** (M) * Form of Indemnity Agreement between Old Republic International
Corporation and each of its directors and certain officers (Exhibit
10 to Form S-3 Registration Statement No. 33-16836).
** (N) * Copy of directors and officers liability and company reimbursement
policy dated October 6, 1970 (Exhibit 12(A) to Form S-1 Registration
Statement No. 2-41089).
(O) * Copy of Bitco Savings Plan (Exhibit 4.3 to Form S-8 Registration
Statement No. 33-32439).
(P) Form 11-K Annual Report of the Bitco Savings Plan for the year ended
December 31, 1994 (To be filed by amendment on Form 10-K).
(Q) * Copy of RMIC Corporation Profit-Sharing Plan (Exhibit 10(M) to
Registrant's Annual Report on Form 10-K for 1980).
** (R) * Copy of a written description of the RMIC Key Employees Performance
Recognition Plan (Exhibit 10(Q) to Registrant's Annual Report on
Form 10-K for 1991).
(S) * Copy of Great West Casualty Company Profit Sharing Plan (Exhibit 10
to Form S-8 Registration Statement No. 33-52069).
(T) Form 11-K Annual Report of the Great West Casualty Company Profit
Sharing Plan for the year ended December 31, 1994 (To be filed by
amendment on Form 10-K).
** (U) * Copy of deferred compensation agreement dated November 4, 1976, as
amended, between RMIC Corporation and William A. Simpson (Exhibit
10(J) to Registrant's Annual Report on Form 10-K for 1980).
** (V) * Copy of deferred compensation agreement dated November 4, 1976, as
amended, between RMIC Corporation and Jimmy A. Dew (Exhibit 10(K) to
Registrant's Annual Report on Form 10-K for 1980).
** (W) * Copy of Incentive Compensation Plan of The Founders Title Group,
Inc. (Exhibit 10(N) to Registrant's Annual Report on Form 10-K for
1980).
** (X) * Copy of part time employment agreement between Old Republic Title
Company and John C. Collopy. (Exhibit 10(W) to Registrant's Annual
Report on Form 10-K for 1993).
(Y) * Placement Agency Agreement dated November 16, 1987 among Old
Republic International Corporation, Old Republic Capital Corporation
and Merrill Lynch Money Markets Inc. (Exhibit 10.1 to Form S-3
Registration Statement No. 33-16836).
(Exhibit Index, Continued)
(Z) * Issuing and Paying Agency Agreement dated November 16, 1987 among
Old Republic International Corporation, Old Republic Capital
Corporation and Morgan Guaranty Trust Company of New York (Exhibit
10.2 to Form S-3 Registration Statement No. 33-16836).
(11) Schedule showing computations of average number of common shares
outstanding, as used in the calculations of per share earnings for
each of the three years ended December 31, 1994, 1993 and 1992.
(21) Subsidiaries of the registrant.
(23) Consent of Coopers & Lybrand L.L.P.
(24) Powers of attorney
(28) Consolidated Schedule P (To be filed by amendment.)
-----------------------
* Exhibit incorporated herein by reference.
** Denotes a management or compensatory plan or arrangement required to be
filed as an exhibit pursuant to Item 601 of Regulation S-K.