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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 quarter March 31, 1995 or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 19
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 (d) 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.
Share Outstanding
Class March 31, 1995
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Common Stock / $1 par value 51,707,145 *
* Excludes 4,439,267 common shares issued, outstanding and held by an
affiliate, which are classified as treasury stock for financial accounting
purposes only.
There are 11 pages contained in this report.
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2
OLD REPUBLIC INTERNATIONAL CORPORATION
Report on Form 10-Q / March 31, 1995
INDEX
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PAGE NO.
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PART I FINANCIAL INFORMATION:
CONSOLIDATED SUMMARY BALANCE SHEETS 3
CONSOLIDATED SUMMARY STATEMENTS OF INCOME 4
CONSOLIDATED SUMMARY STATEMENTS OF CASH FLOWS 5
NOTES TO CONSOLIDATED SUMMARY FINANCIAL STATEMENTS 6
MANAGEMENT ANALYSIS OF FINANCIAL POSITION AND
RESULTS OF OPERATIONS 7 & 8
PART II OTHER INFORMATION 9 - 11
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3
<TABLE>
OLD REPUBLIC INTERNATIONAL CORPORATION
CONSOLIDATED SUMMARY BALANCE SHEETS (Unaudited)
($ in Millions)
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March 31, December 31,
1995 1994
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<S> <C> <C>
Assets
Investments: Held to maturity:
Fixed maturity securities (at amortized cost)
(Fair value: $2,724.1 and $2,582.6) $2,794.9 $2,727.2
Other long-term investments (at cost) 28.2 27.3
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Total 2,823.1 2,754.6
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Available for sale:
Fixed maturity securities (at fair value) (Cost: $682.2 and $646.8) 673.3 620.3
Equity securities (at fair value) (Cost: $234.9 and $254.7) 261.4 263.8
Short-term investments 208.6 172.1
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Total 1,143.4 1,056.2
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Total investments 3,966.6 3,810.8
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Other Assets:Cash 22.4 31.1
Accrued investment income 69.7 64.3
Accounts and notes receivable 284.8 285.1
Federal income tax recoverable - Current --- 4.8
- Deferred 51.2 72.4
Reinsurance balances and funds held 133.1 142.4
Reinsurance recoverable - Paid losses 29.0 25.6
- Policy and claim reserves 1,518.5 1,526.3
Deferred policy acquisition costs 99.5 101.3
Sundry assets 197.5 198.1
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2,406.2 2,452.0
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Total Assets $6,372.9 $6,262.9
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Liabilities, Preferred Stock and
Common Shareholders' Equity
Liabilities: Future policy benefits $183.3 $184.9
Losses, claims and settlement expenses 3,571.3 3,514.7
Unearned premiums 406.2 405.5
Other policyholders' benefits and funds 71.9 79.1
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Total policy liabilities and accruals 4,232.8 4,184.3
Commissions, expenses, fees and taxes 93.2 106.3
Reinsurance balances and funds 175.5 162.2
Federal income tax payable - current 5.0 ---
Debt and debt equivalents 312.9 314.7
Sundry liabilities 91.1 90.4
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Total liabilities 4,910.8 4,858.1
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Preferred Redeemable convertible preferred stock 17.5 16.8
Stock: Convertible preferred stock 3.4 3.8
Cumulative preferred stock 54.8 54.8
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Total preferred stock 75.7 75.4
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Common Common stock 57.7 57.6
Shareholders'Additional paid-in capital 458.1 456.9
Equity: Net unrealized appreciation (depreciation) of securities 12.4 (10.4)
Retained earnings 896.2 865.0
Treasury stock (at cost) (38.4) (39.8)
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Total Common Shareholders' Equity 1,386.2 1,329.3
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Total Liabilities, Preferred Stock
and Common Shareholders' Equity $6,372.9 $6,262.9
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</TABLE>
See accompanying notes.
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4
<TABLE>
OLD REPUBLIC INTERNATIONAL CORPORATION
CONSOLIDATED SUMMARY STATEMENTS OF INCOME (Unaudited)
($ in Millions, Except Common Share Data)
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Quarters Ended
March 31,
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1995 1994
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<S> <C> <C>
Revenues: Net premiums earned $292.6 $331.4
Title, escrow and other fees 23.8 43.8
Net investment income 61.1 55.1
Realized investment gains 3.7 3.2
Other income 4.5 4.3
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Net revenues 385.8 438.0
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Expenses: Benefits, claims and settlement expenses 170.4 203.1
Underwriting, acquisition and insurance expenses 151.8 178.8
Interest and other expenses 6.7 5.6
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Total expenses 329.0 387.7
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Income before income taxes and items below 56.7 50.3
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Income Taxes: Currently payable 11.0 14.8
Deferred 7.2 1.4
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Total income taxes 18.3 16.2
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38.4 34.0
Other items - net 0.6 ---
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Net Income: $39.0 $34.0
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Earnings and
Dividends Per
Common Share: Primary Earnings $0.66 $0.57
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Fully Diluted Earnings $0.63 $0.55
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Cash dividends $0.12 $0.11
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Average number of common and common
equivalent shares outstanding:
Primary 56,938,962 57,264,289
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Fully Diluted 61,397,387 61,693,146
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</TABLE>
See accompanying notes.
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5
<TABLE>
OLD REPUBLIC INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
($ in Millions)
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Quarters Ended
March 31,
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1995 1994
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<S> <C> <C>
Cash flows from operating activities:
Net income $39.0 $34.0
Change in non-cash items:
Deferred policy acquisition costs 1.7 (0.3)
Premiums and other receivables (0.5) 5.1
Unpaid claims and related items 56.7 40.2
Future policy benefits and policyholders' funds 6.7 (14.6)
Income taxes 18.6 (4.0)
Reinsurance balances and funds 18.9 (0.2)
Accounts payable, accrued expenses and other (24.5) (10.7)
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Total 116.8 49.4
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Cash flows from investing activities:
Sales of fixed maturity securities:
Held to maturity:
Maturities and early calls 23.3 51.0
Other --- 3.8
Available for sale:
Maturities and early calls 22.6 8.0
Other 9.7 23.3
Sales of equity securities 24.7 2.9
Sales of other investments 0.7 0.9
Sales of fixed assets for company use 0.8 0.2
Purchases of fixed maturity securities:
Held to maturity (119.2) (96.1)
Available for sale (42.8) (19.7)
Purchases of equity securities (4.3) (25.1)
Purchases of other investments (1.5) (0.3)
Purchases of fixed assets for company use (1.2) (3.1)
Other-net 4.4 (0.3)
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Total (82.5) (54.6)
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Cash flows from financing activities:
Increase in term loans --- 11.0
Issuance of preferred and common stocks 0.9 0.3
Repayments of term loans (1.0) ---
Dividends on common shares (5.9) (5.7)
Dividends on preferred shares (2.0) (2.0)
Purchase of treasury stock (0.9) ---
Other-net 2.4 (0.5)
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Total (6.4) 3.0
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Increase (decrease) in cash and short-term investments 27.8 (2.0)
Cash and short-term investments, beginning of year 203.3 298.3
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Cash and short-term investments, end of period $231.1 $296.2
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Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $4.6 $3.7
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Income taxes $1.2 $18.5
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</TABLE>
See accompanying notes.
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6
OLD REPUBLIC INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED SUMMARY FINANCIAL STATEMENTS (Unaudited)
($ 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 of judgement, 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 ended March 31, 1995
and 1994. Retroactive adjustment has been made for all stock dividends and
splits declared through March 31, 1995. Primary earnings per share
calculations give effect to the deduction of dividend requirements applicable
to preferred stock of $1.2 for the quarters ended March 31, 1995 and 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 51,707,145 at March 31, 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 investments (fixed maturity securities
available for sale and equity securities) debited to a separate account in
common shareholders' equity amounted to $12.4 at March 31, 1995. Unrealized
appreciation of investments, before applicable income taxes of $7.1, at March
31, 1995 included gross unrealized gains and (losses) of $37.3 and $(17.8),
respectively.
For the quarters ended March 31, 1995 and 1994, net unrealized appreciation
(depreciation) of investments, net of deferred income taxes, amounted to
$22.9 and $(25.3), respectively.
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7
OLD REPUBLIC INTERNATIONAL CORPORATION
MANAGEMENT ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS
Quarters Ended March 31, 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 March 31, 1995 reflected increases in
assets of 1.8%, liabilities of 1.1%, and common shareholders' equity of 4.3%
when compared to the immediately preceding year-end. Cash and invested assets
represented 63.7% and 62.4% of consolidated assets as of March 31, 1995 and
December 31, 1994, respectively. Relatively high short-term maturity
investment positions continued to be maintained as of March 31, 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 quarter 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
quarter of 1995, Old Republic's commitment to common stock investments
declined by 1.2% vis-a-vis the related invested balance at year-end 1994. As
of March 31, 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 this year's first
quarter. 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 $1.77 billion at March 31, 1995 consisted of
debt and debt equivalents of $312.9 million, redeemable convertible preferred
stock of $17.5 million (excluding $12.8 million of such stock classified as
a debt equivalent), convertible preferred stock of $3.4 million, cumulative
preferred stock of $54.8 million, and common shareholders' equity of $1.38
billion. The increase in the common shareholders' equity account during the
quarter ended March 31, 1995 reflects primarily the retention of earnings in
excess of dividends declared on outstanding preferred and common shares and
the net unrealized appreciation of securities. 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 quarter of 1995,
the Corporation acquired an additional $.9 million of its common stock. As
of March 31, 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 quarter of 1995 amounted to $316.4
million and were 15.7% below the amount reported for the first quarter of
1994. The Company's General Insurance Group posted premium revenues which
decreased slightly due to reduced involuntary market participation and to the
settlement of certain insurance agreements that caused a corresponding
decline in claim costs, thus having no effect on earnings. Title Group
premium and fee revenues decreased in the first quarter of 1995 when compared
to the immediately preceding quarter and first 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 new
premium production was affected by the factors cited for title insurance, but
was enhanced by further expansion of this group's marketing territory and
increased share of the market, as well as from greater renewal premiums.
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8
Consolidated net investment income was $61.1 million in the first quarter of
1995 compared to $55.1 million in the same quarter 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
6.5% of the investment portfolio at the end of the first quarter of 1995
compared to 5.4% one year ago. The average annualized yield on investments
was 6.3% and 6.1% at the end of March 31, 1995 and 1994, respectively.
While the Company's investment policies have not been designed to maximize
realized investment gains, in the first quarter of 1995 such gains were
slightly higher than those for the comparable period in 1994. 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 quarter of 1995,
approximately 82% 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 54% in the first quarters of
1995 and 1994. Claims for property and liability coverages were lower in 1995
due in part to the previously mentioned reduced involuntary market
participation and settlement of certain insurance agreements. Additionally,
results for 1995 benefited from improved loss ratios in the Company's
property and other non-liability insurance lines. The Mortgage Guaranty and
Life insurance segments' claim costs were basically stable for the first
quarter 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 was 48% in the first quarter of 1995 and 1994.
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 12.7% in the first quarter
of 1995 when compared to the same period one year ago. The Corporation's
General and Mortgage Guaranty insurance segments reflected higher pre-tax
operating earnings and the Title insurance segment reflected a pre-tax
operating loss for the aforementioned reasons. The Life insurance segment
reflected a moderate increase in pre-tax earnings from operations.
The effective consolidated income tax rate was 32% in the first quarter of
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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9
OLD REPUBLIC INTERNATIONAL CORPORATION
FORM 10 - Q
PART II - OTHER INFORMATION
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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.
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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: May 12, 1995
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__________/s/ Paul D. Adams_________
Paul D. Adams
Senior Vice President &
Chief Financial Officer
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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OLD REPUBLIC INTERNATIONAL CORPORATION
EARNINGS PER SHARE EXHIBIT
(Amounts in millions, except per share data)
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Computation of Primary
Earnings Per Share
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Quarters Ended March 31,
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1995 1994
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<S> <C> <C>
Weighted average number of common shares outstanding 51.6 51.8
Add: Weighted average number of assumed common shares to
be issued upon conversion or exercise of:
Redeemable and/or Convertible Preferred Stock 4.9 4.9
Stock Options 0.3 0.4
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Weighted average number of common and common equivalent shares 56.9 57.2
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Net income for the period $39.0 $34.0
Less dividends applicable to appropriate Series of
Redeemable and Convertible Preferred Stock 1.2 1.2
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Adjusted net income $37.8 $32.8
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Primary earnings per share $0.66 $0.57
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Computation of Fully Diluted
Earnings Per Share
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Quarters Ended March 31,
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1995 1994
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Weighted average number of common shares outstanding 51.6 51.8
Add: Weighted average number of assumed common shares to
be issued upon conversion or exercise of:
Redeemable and/or Convertible Preferred Stock 5.1 5.1
Convertible Subordinated Debentures 4.2 4.2
Stock Options 0.3 0.4
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Weighted average number of common and common equivalent shares 61.3 61.6
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Net income for the period $39.0 $34.0
Less dividends applicable to appropriate Series of
Cumulative Preferred Stock 1.1 1.2
Plus interest applicable to Convertible Debentures 0.9 1.0
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Adjusted net income $38.8 $33.8
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Fully diluted earnings per share $0.63 $0.55
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</TABLE>
