1
SECURITIES AND EXCHANGE COMMISSION
OF THE SECURITIES EXCHANGE ACT OF 1934
FORM 10 - Q
[ X ] Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period June 30, 1995 or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number 0-4625
OLD REPUBLIC INTERNATIONAL CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware No. 36-2678171
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
307 North Michigan Avenue, Chicago, Illinois 60601
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(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: 312-346-8100
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 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
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the period covered by this report.
Shares Outstanding
Class June 30, 1995
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Common Stock / $1 par value 51,828,754*
* Excludes 4,439,267 common shares issued, outstanding and held by an
affiliate, which are classified as treasury stock for financial accounting
purposes only.
There are 11 pages contained in this report.
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OLD REPUBLIC INTERNATIONAL CORPORATION
Report on Form 10-Q / June 30, 1995
INDEX
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PAGE NO.
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PART I FINANCIAL INFORMATION:
CONSOLIDATED SUMMARY BALANCE SHEETS 3
CONSOLIDATED SUMMARY STATEMENTS OF INCOME 4
CONSOLIDATED SUMMARY STATEMENTS OF CASH FLOWS 5
NOTES TO CONSOLIDATED SUMMARY FINANCIAL STATEMENTS 6
MANAGEMENT ANALYSIS OF FINANCIAL POSITION AND
RESULTS OF OPERATIONS 7 & 8
PART II OTHER INFORMATION 9 - 11
3
OLD REPUBLIC INTERNATIONAL CORPORATION
CONSOLIDATED SUMMARY BALANCE SHEETS (Unaudited)
($ in Millions)
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June 30, December 31,
1995 1994
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Assets
Investments: Held to maturity:
Fixed maturity securities (at amortized cost)
(Fair value: $2,905.0 and $2,582.6) $2,880.3 $2,727.2
Other long-term investments (at cost) 27.5 27.3
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Total 2,907.8 2,754.6
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Available for sale:
Fixed maturity securities (at fair value)
(Cost:$654.8 and $646.8) 670.5 620.3
Equity securities (at fair value)
(Cost: $237.4 and $254.7) 286.5 263.8
Short-term investments 200.5 172.1
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Total 1,157.5 1,056.2
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Total investments 4,065.4 3,810.8
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Other Assets:Cash 30.0 31.1
Accrued investment income 66.0 64.3
Accounts and notes receivable 298.4 285.1
Federal income tax recoverable - Current 1.6 4.8
- Deferred 25.5 72.4
Reinsurance balances and funds held 128.3 142.4
Reinsurance recoverable - Paid losses 27.2 25.6
- Policy and claim reserves 1,516.6 1,526.3
Deferred policy acquisition costs 101.7 101.3
Sundry assets 194.9 198.1
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2,390.6 2,452.0
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Total Assets $6,456.1 $6,262.9
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Liabilities, Preferred Stock and
Common Shareholders' Equity
Liabilities: Future policy benefits $181.5 $184.9
Losses, claims and settlement expenses 3,604.5 3,514.7
Unearned premiums 398.4 405.5
Other policyholders' benefits and funds 72.5 79.1
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Total policy liabilities and accruals 4,257.1 4,184.3
Commissions, expenses, fees and taxes 95.8 106.3
Reinsurance balances and funds 168.3 162.2
Debt and debt equivalents 304.0 314.7
Sundry liabilities 101.2 90.4
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Total liabilities 4,926.6 4,858.1
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Preferred Redeemable convertible preferred stock 18.3 16.8
Stock: Convertible preferred stock 2.6 3.8
Cumulative preferred stock 54.8 54.8
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Total preferred stock 75.8 75.4
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Common Common stock 57.8 57.6
Shareholders'Additional paid-in capital 459.3 456.9
Equity: Net unrealized appreciation (depreciation) of
securities 44.1 (10.4)
Retained earnings 930.6 865.0
Treasury stock (at cost) (38.4) (39.8)
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Total Common Shareholders' Equity 1,453.6 1,329.3
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Total Liabilities, Preferred Stock
and Common Shareholders' Equity $6,456.1 $6,262.9
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See accompanying notes.
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OLD REPUBLIC INTERNATIONAL CORPORATION
CONSOLIDATED SUMMARY STATEMENTS OF INCOME (Unaudited)
($ in Millions, Except Common Share Data)
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Quarters Ended Six Months Ended
June 30, June 30,
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1995 1994 1995 1994
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Revenues: Net premiums earned $317.1 $326.3 $609.7 $657.8
Title, escrow and other fees 29.4 37.3 53.2 81.1
Net investment income 62.4 55.1 123.6 110.3
Realized investment gains 1.9 2.6 5.7 5.9
Other income 5.8 5.3 10.3 9.7
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Net revenues 416.9 426.9 802.7 864.9
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Expenses: Benefits, claims and settlement expenses 201.1 193.7 371.6 396.9
Underwriting, acquisition and insurance expenses 146.3 173.7 298.2 352.5
Interest and other expenses 6.7 5.7 13.5 11.3
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Total expenses 354.2 373.1 683.3 760.8
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Income before income taxes and items below 62.6 53.7 119.4 104.0
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Income Taxes: Currently payable 10.7 8.2 21.8 23.0
Deferred 9.4 9.4 16.7 10.8
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Total income taxes 20.2 17.6 38.5 33.9
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42.3 36.1 80.8 70.1
Other items - net (0.3) --- 0.2 ---
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Net Income: $42.0 $36.0 $81.0 $70.1
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Earnings and
Dividends Per
Common Share: Primary Earnings $0.72 $0.61 $1.38 $1.18
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Fully Diluted Earnings $0.68 $0.58 $1.31 $1.13
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Cash dividends $0.13 $0.12 $0.25 $0.23
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Average number of common and common
equivalent shares outstanding:
Primary 57,021,249 57,264,182 56,978,405 57,268,222
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Fully Diluted 61,524,206 61,692,856 61,511,816 61,696,988
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See accompanying notes.
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OLD REPUBLIC INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
($ in Millions)
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Six Months Ended
June 30,
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1995 1994
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Cash flows from operating activities:
Net income $81.0 $70.1
Change in non-cash items:
Deferred policy acquisition costs (0.3) (1.7)
Premiums and other receivables (14.6) (7.4)
Unpaid claims and related items 87.1 77.9
Future policy benefits and policyholders' funds 1.1 (29.8)
Income taxes 22.1 (6.3)
Reinsurance balances and funds 18.5 6.0
Accounts payable, accrued expenses and other 0.8 1.7
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Total 195.9 110.3
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Cash flows from investing activities:
Sales of fixed maturity securities:
Held to maturity:
Maturities and early calls 59.2 88.8
Other --- 7.5
Available for sale:
Maturities and early calls 38.0 28.4
Other 35.0 35.9
Sales of equity securities 41.4 11.3
Sales of other investments 2.3 2.3
Sales of fixed assets for company use 1.6 0.6
Purchases of fixed maturity securities:
Held to maturity (241.9) (200.9)
Available for sale (56.1) (37.3)
Purchases of equity securities (23.2) (50.5)
Purchases of other investments (2.4) (0.6)
Purchases of fixed assets for company use (3.0) (7.0)
Other-net 2.5 ---
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Total (146.4) (121.4)
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Cash flows from financing activities:
Increase in term loans --- 11.0
Issuance of preferred and common stocks 1.4 0.8
Repayments of term loans (8.5) ---
Dividends on common shares (13.1) (11.9)
Dividends on preferred shares (3.9) (4.0)
Purchase of treasury stock (0.9) (0.8)
Issuance of treasury stock 2.3 ---
Other-net 0.4 (0.6)
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Total (22.2) (5.7)
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Increase (decrease) in cash and short-term
investments 27.2 (16.8)
Cash and short-term investments,
beginning of year 203.3 298.3
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Cash and short-term investments,
end of period $230.5 $281.5
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Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $11.6 $9.8
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Income taxes $18.5 $38.6
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See accompanying notes.
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OLD REPUBLIC INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED SUMMARY FINANCIAL STATEMENTS (Unaudited)
($ in Millions, Except Share Data)
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1.Accounting Policies and Basis of Presentation:
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The accompanying consolidated summary financial statements have been prepared
in conformity with generally accepted accounting principles as described in
the Corporation's latest annual report to shareholders or as disclosed
herein. The financial accounting and reporting process relies on estimates
and on the exercise ofjudgement, but in the opinion of management all
adjustments, consisting of normal recurring accruals, necessary to a fair
presentation of the accompanying statements have been reflected therein.
Realized gains or losses on dispositions of investment securities have been
reflected in the operating results for each period presented.
2.Common Share Data:
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Earnings per share have been calculated on the basis of average common and
common equivalent shares outstanding for the quarters and six months ended
June 30, 1995 and 1994. Retroactive adjustment has been made for all stock
dividends and splits declared through June 30, 1995. Primary earnings per
share calculations give effect to the deduction of dividend requirements
applicable to preferred stock of $1.2 and $2.4 for the quarter and six months
ended June 30, 1995, respectively and $1.2 and $2.5 for the quarter and six
months ended June 30, 1994, respectively. Fully diluted earnings per share
are similarly calculated, after taking into account substantially all
convertible securities and options includable for each period.
Common shares outstanding were 51,828,754 at June 30, 1995 after elimination
of 4,439,267 shares issued and outstanding, which are held by a consolidated
affiliate. These shares are classified as treasury stock for financial
accounting purposes only.
3.Unrealized Appreciation of Investments:
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Cumulative net unrealized gains on fixed maturity securities available for
sale and equity securities credited to a separate account in common
shareholders' equity amounted to $44.1 at June 30, 1995. Unrealized
appreciation of investments, before applicable income taxes of $22.6, at June
30, 1995 included gross unrealized gains and (losses) of $75.7 and $(8.8),
respectively.
For the six months ended June 30, 1995 and 1994, net unrealized appreciation
(depreciation) of investments, net of deferred income taxes, amounted to
$54.6 and $(33.1), respectively.
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OLD REPUBLIC INTERNATIONAL CORPORATION
MANAGEMENT ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS
Six Months Ended June 30, 1995 and 1994
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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.
FINANCIAL POSITION
Old Republic's financial position at June 30, 1995 reflected increases in
assets of 3.1%, liabilities of 1.4%, and common shareholders' equity of 9.4%
when compared to the immediately preceding year-end. Cash and invested assets
represented 64.5% and 62.4% of consolidated assets as of June 30, 1995 and
December 31, 1994, respectively. Relatively high short-term maturity
investment positions continued to be maintained as of June 30, 1995 to
provide necessary liquidity for specific operating needs and to enhance
flexibility in investment strategy. Changes in short-term investments reflect
a large 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 the first six months of
1995, the Corporation committed substantially all investable funds in short
to intermediate-term fixed maturity securities. Old Republic continues to
adhere to its long-term policy of investing primarily in investment grade,
marketable securities; the Corporation has not directed its investable funds
to so-called "junk bonds" or derivative types of securities. During the first
six months of 1995, Old Republic's commitment to common stock investments
increased by 8.4% vis-a-vis the related invested balance at year-end 1994. As
of June 30, 1995, 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 in the first half of
1995. The parent holding company has met its liquidity and capital needs
principally through dividends paid by its subsidiaries. The insurance
subsidiaries' ability to pay cash dividends to the parent company is
generally restricted by law or subject to approval of the insurance
regulatory authorities of the states in which they are domiciled.
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 $1.83 billion at June 30, 1995 consisted of
debt and debt equivalents of $304.0 million, redeemable convertible preferred
stock of $18.3 million (excluding $11.7 million of such stock classified as
a debt equivalent), convertible preferred stock of $2.6 million, cumulative
preferred stock of $54.8 million, and common shareholders' equity of $1.45
billion. The increase in the common shareholders' equity account during the
six months ended June 30, 1995 reflects primarily the retention of earnings
in excess of dividends declared on outstanding preferred and common shares
and a substantial increase during the first half of 1995 in the value of
bonds and stocks carried at market value. During 1994, the Corporation
acquired $8.5 million of its common stock and $2.6 million of its cumulative
preferred stock in open market transactions. In the first half of 1995, the
Corporation acquired an additional $.9 million of its common stock. As of
June 30, 1995, 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 $38.0 million through May 1996.
RESULTS OF OPERATIONS
Revenues:
Net premiums and fees earned in the first half of 1995 amounted to $663.0
million and were 10.3% below the amount reported for the first half of 1994.
For the second quarter of 1995, net premiums and fees earned amounted to
$346.5 million and were 4.7% below the amount reported for the second quarter
of 1994. For the second quarter of 1995, the Company's General Insurance
Group posted an increase in premium revenues due to varying levels of growth
in certain parts of the Company's business, but principally among liability
coverages. Title Group premium and fee revenues decreased in the second
quarter of 1995 when compared to the second quarter of 1994; a rise in
mortgage rates, depressed conditions in the large California housing market
in particular, and the near absence of refinancing activity contributed to a
decline in mortgage originations. Growth in the Mortgage Guaranty Group's
premium production was affected by the factors cited for title insurance, but
was enhanced by continued expansion of this group's marketing territory and
from a larger volume of renewal premiums.
8
The General Insurance Group's net premiums earned decreased 3.2% to $426.9
million in the first half of 1995. The Title Insurance Group reported
premiums and fees in the first half of $136.2 million, down from $214.8
million in the year-ago period. The Mortgage Guaranty Group continued to
experience double-digit growth in production and reported net premiums earned
of $78.7 million, an increase of 24.1%. For the year's second quarter,
premium and fees grew (declined) by 3.1% for general insurance, (31.8%) for
title insurance and 23.1% for mortgage guaranty. Life and health premiums
also rose during these 1995 periods but remained below 3% of consolidated
premiums and fees.
Consolidated net investment income was $123.6 million in the first half of
1995 and $62.4 million in the second quarter of 1995 compared to $110.3
million and $55.1 million, respectively in the same quarter and six month
period of 1994. The higher revenue from this source is attributable to
positive cash flow in addition to improved market yields for fixed-maturity
securities. Equities made up about 7.0% of the investment portfolio at the
end of the first half of 1995 compared to 5.9% one year ago. The average
annualized yield on investments was 6.3% and 6.1% at the end of June 30, 1995
and 1994, respectively.
The Company's investment policies have not been designed to maximize realized
investment gains. Dispositions of securities have, as in recent periods,
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. For the first six months of 1995, approximately 73% of total
dispositions represented maturities and early calls of existing holdings; for
the year 1994 these transactions amounted to approximately 64%.
Expenses:
Consolidated benefit, claim and settlement costs, as a percentage of net
premiums and fees earned, were approximately 56% and 54% in the first six
months of 1995 and 1994, respectively. For the second quarter of each year
these ratios were 58% in 1995 and 53% in 1994. Claims for property and
liability coverages were approximately the same in both periods, despite
reduced losses from involuntary pool assessments. The Mortgage Guaranty and
Life insurance segments' claim costs were basically stable for the first half
of 1995 compared to the same period in 1994, while the Title segment
benefited from generally lower claim provisions.
The ratio of consolidated underwriting, acquisition and insurance expenses to
net premiums and fees earned were 45% and 48% in the first six months of 1995
and 1994, respectively. These ratios were 42% and 48% for the second quarters
of 1995 and 1994, respectively. Variations in these percentages between
comparative periods typically reflect changing patterns in the mix of
business and the varying production costs pertaining thereto.
Income from Operations:
Income before taxes and other items increased by 15.8% in the first half of
1995 when compared to the same period one year ago; for the second quarter of
1995, pre-tax income increased by 18.7% when compared to the same quarter in
1994. The Corporation's General and Mortgage Guaranty insurance segments
reflected higher pre-tax operating earnings, and the Life segment reported
basically level to slightly higher pre-tax earnings from operations. The
Title insurance segment posted a pre-tax operating loss for the
aforementioned reasons, though the loss in the second quarter of 1995 was
much lower than that reported in the preceding quarter due to slightly higher
premium and fee revenues and lower claim and expense ratios.
The effective consolidated income tax rate was 32% in the first six months of
1995 and 1994, respectively, as well as in the second quarters of both 1995
and 1994. The rates for each period reflect primarily the varying
proportions of pre-tax operating income derived from tax-sheltered investment
income (principally tax-exempt interest) on the one hand, and fully taxable
investment and underwriting/service income on the other hand.
OTHER INFORMATION
Historical data pertaining to the operating results, liquidity, and other
financial matters applicable to an insurance enterprise such as the Company
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, 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 quarter-to-quarter and
year-to-year comparisons and future operating results.
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OLD REPUBLIC INTERNATIONAL CORPORATION
FORM 10 - Q
PART II - OTHER INFORMATION
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Item 4 - Submission of Matters to a Vote of Security Holders
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(a) The annual meeting of registrant's shareholders was held on May 12, 1995.
(b) Proxies for the meeting were solicited by management pursuant to
Regulation 14A under the Security Exchange Act of 1934. There was no
solicitation in opposition to management's nominees for directors as
listed in the proxy statement and all such nominees were elected.
(c) At the meeting, the shareholders voted on the following matters:
1. The election of five Class I directors. There were at least
68,012,416 affirmative votes for each director and no more than
1,364,092 votes withheld.
Item 6 - Exhibits and reports on Form 8-K
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(a) Exhibits
1. Earnings per share.
(b) Reports on Form 8-K
1. The registrant has not filed any reports on Form 8-K during the
quarter for which this report was filed.
Items other than those listed are omitted because they are not required.
10
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Old Republic International Corporation
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(Registrant)
Date: August 11, 1995
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/s/ Paul D. Adams
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P. D. Adams
Senior Vice President &
Chief Financial Officer