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, 1995
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
Outstanding Name of each exchange
Title of each class February 29, 1996 on which registered
- ------------------- ----------------- -----------------------
5 3/4% Convertible Subordinated
Debentures Due August 15, 2002 $99,077,000 ** New York Stock Exchange
8 3/4% Series H Cumulative
Preferred Stock 2,192,100 New York Stock Exchange
Common Stock/$1 par value 53,288,018 * 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.
(**) On February 12, 1996, the Company called for the redemption of all of these
convertible subordinated debentures.
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 re-
quired 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 29, 1996 was $1,825,114,617.
Documents incorporated by reference:
- -----------------------------------
The following documents are incorporated by reference into that part of this
Form 10-K designated to the right of the document title.
Title Part
Proxy statement for the 1996 Annual
Meeting of Shareholders III, Items 10, 11, 12 and 13
Exhibits as specified in exhibit index (page 52) IV, Item 14
____________________
There are 54 pages in this report
<PAGE>
PART I
Item 1-Business
(a) General Development of Business. Old Republic International Corporation is
a Chicago-based insurance holding company with subsidiaries engaged in the
general (property & liability), mortgage guaranty, title, and life (life &
disability) insurance businesses. In this report, "Old Republic", "the
Corporation", or "the Company" refers to Old Republic International Corporation
and its subsidiaries as the context requires. The aforementioned insurance
segments are organized as the Old Republic General, Mortgage Guaranty, Title,
and Life Groups, and references herein to such groups apply to the Company's
subsidiaries engaged in the respective segments of business.
Financial Information Relating to Segments of Business (a)
The contributions to net revenues, and income (loss) before taxes and the
cumulative effect of accounting changes of each Old Republic segment are set
forth below for the years shown, together with their respective assets at the
end of each year. The information below should be read in conjunction with the
consolidated financial statements, the notes thereto, and the "Management
Analysis of Financial Position and Results of Operations" appearing elsewhere
herein.
<TABLE>
<CAPTION>
($ in Millions)
-----------------------------------------------------------
Years Ended December 31,
-----------------------------------------------------------
Net Revenues (b) Income (Loss) Before Taxes
---------------------------- ----------------------------
1995 1994 1993 1995 1994 1993
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
General. . . . . . . . . . . . . . . . . . . . . . $1,056.1 $1,051.4 $1,058.5 $ 171.1 $ 154.2 $ 124.5
Mortgage Guaranty. . . . . . . . . . . . . . . . . 203.9 158.3 118.6 102.8 78.3 61.3
Title. . . . . . . . . . . . . . . . . . . . . . . 326.2 404.7 467.9 4.6 (.2) 32.1
Life . . . . . . . . . . . . . . . . . . . . . . . 58.0 55.7 49.5 7.9 6.4 6.5
Other Operations - Net . . . . . . . . . . . . . . 1.8 .9 1.3 (20.2) (20.6) (21.4)
-------- -------- -------- -------- -------- --------
Subtotal. . . . . . . . . . . . . . . . . . . . . 1,646.1 1,671.2 1,696.0 266.2 218.1 203.0
Realized Investment Gains. . . . . . . . . . . . . 49.7 7.7 40.2 49.7 7.7 40.2
-------- -------- -------- -------- -------- --------
Total . . . . . . . . . . . . . . . . . . . . . . $1,695.9 $1,679.0 $1,736.3 $ 316.0 $ 225.8 $ 243.3
======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Assets at December 31,
----------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $5,356.8 $5,199.9 $5,075.1
Mortgage Guaranty. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 634.0 487.8 408.3
Title. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 415.8 402.4 402.7
Life . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 328.2 322.7 336.8
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $6,593.5 $6,262.9 $6,098.3
======== ======== ========
__________
(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.
</TABLE>
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.
<PAGE>
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 1995, production of direct
workers' compensation premiums accounted for 28.2% 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 12.0% and 39.1%, 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
liquid petroleum gas operations.
The Corporation assumes (on both treaty and facultative bases) a moderate
amount of reinsurance business produced 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 and selected
independent agents.
Mortgage Guaranty Group
Real estate mortgage loan insurance protects lending institutions against
certain losses, generally to the extent of 10% to 35% 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 21%
by savings and loan associations, 65% by commercial bankers and the remaining
14% 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, 1995, was originally produced by approximately 3,600 different
lending institutions and about 2,100 such institutions originated business in
1995.
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 64% of the residential real
estate loan insurance in force at December 31, 1995, has been written under
annual premium plans. However, the monthly premium plan, a new product that
was introduced in 1993, accounted for approximately 88% of the new business
written in 1995.
<PAGE>
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.
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.
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, owners of small businesses, and high net worth persons.
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 lower
quality or illiquid investments to help assure higher, more competitive
guaranteed rates.
<PAGE>
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, Mortgage Guaranty and Title in-
surance 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:
<TABLE>
<CAPTION>
($ in Millions)
Years Ended December 31,
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
General Insurance Group:
Overall Experience:
Net Premiums Written. . . . . . . . . . . $ 876.1 $ 851.6 $ 876.7
Net Premiums Earned (a) . . . . . . . . . $ 847.7 $ 860.6 $ 866.3
Loss Ratio. . . . . . . . . . . . . . . . 75% 76% 81%
Policyholders' Dividend Ratio . . . . . . 1% 1% (1)%
Expense Ratio(a). . . . . . . . . . . . . 26% 26% 26%
---------- ---------- ----------
Composite Ratio . . . . . . . . . . . . . 102% 103% 106%
========== ========== ==========
Experience by Major Coverages:
Workers' Compensation:
Net Premiums Earned (a) . . . . . . . . . $ 187.2 $ 239.4 $ 271.1
Loss Ratio . . . . . . . . . . . . . . . 88% 81% 96%
Policyholders' Dividend Ratio . . . . . . 3% 4% (2)%
========== ========== ==========
Commercial Automobile (Principally trucking):
Net Premiums Earned (a) . . . . . . . . . $ 361.3 $ 321.2 $ 284.1
Loss Ratio . . . . . . . . . . . . . . . 79% 82% 77%
========== ========== ==========
General Liability:
Net Premiums Earned (a) . . . . . . . . . $ 53.7 $ 54.2 $ 54.0
Loss Ratio . . . . . . . . . . . . . . . 55% 84% 80%
========== ========== ==========
Property and Other Coverages:
Net Premiums Earned (a) . . . . . . . . . $ 245.5 $ 245.7 $ 257.3
Loss Ratio . . . . . . . . . . . . . . . 69% 62% 69%
========== ========== ==========
Mortgage Guaranty Group:
Net Premiums Earned (b) . . . . . . . . . $ 175.2 $ 134.5 $ 96.8
Loss Ratio (a) . . . . . . . . . . . . . 34% 28% 26%
========== ========== ==========
Title Insurance Group:(b)
Net Premiums Earned . . . . . . . . . . . $ 183.3 $ 244.4 $ 249.6
Combined Net Premiums & Fees Earned . . . $ 305.5 $ 384.7 $ 449.4
Loss Ratio:To Net Premiums Earned . . . . 14% 18% 26%
:To Net Premiums & Fees Earned. 8% 12% 15%
========== ========== ==========
Disability/Accident & Health (c):
Net Premiums Earned. . . . . . . . . . . $ 31.2 $ 28.5 $ 20.6
Loss Ratio . . . . . . . . . . . . . . . 44% 46% 59%
========== ========== ==========
Net Retained Life Insurance In Force:
Ordinary Life . . . . . . . . . . . . . $ 4,063.4 $ 4,230.0 $ 4,046.7
Credit and Other Life. . . . . . . . . . 173.6 193.3 239.8
---------- ---------- ----------
Total . . . . . . . . . . . . . . . . . $ 4,237.0 $ 4,423.4 $ 4,286.7
========== ========== ==========
__________
(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.
</TABLE>
<PAGE>
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 be considered in light of
such a concurrent underwriting approach.
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 Title Insurance Group loss
ratios for the years presented reflect improving loss severity and frequency
trends for business underwritten since 1992. In 1993, however, additional claim
provisions of $13.3 million covering various escrow losses in process of final
settlement increased the loss ratio (as a percentage of premiums and fees
earned) by 3 percentage points.
The increases in net ordinary life insurance in force in 1994 and 1993 are
attributed to the introduction beginning in 1990 of more favorably priced life
products that received greater market acceptance. The decrease in net ordinary
life insurance in force in 1995 is attributed to competitive market pressures
which served to reduce first year premium production.
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 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, and to the evolution, interpretation, and expansion
of tort law, as well as to 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 4.0%.
The Company, where applicable, uses only such discounted reserves in evaluating
the results of its operations, in pricing its products and settling retro-
spective and reinsured accounts, in evaluating policy terms and experience, and
for other general business purposes. Solely to comply with reporting rules man-
dated 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.
<PAGE>
These studies have resulted in estimates of such amounts at approximately
$162.8, $169.1 and $154.3 million, as of December 31, 1995, 1994, and 1993,
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 the indicated deficiencies or redundancies for
the years 1985 to 1995. 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 for all years 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.
<TABLE>
<CAPTION>
($ in Millions/Percentages to Nearest Whole Point)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(a) As of December 31: 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
---- ---- ---- ---- ---- ---- ----- ---- ---- ---- ----
(b) Liability (1) for unpaid claims
and claim adjustment
expenses(2): $743 $974 $1,130 $1,271 $1,335 $1,435 $1,540 $1,573 $1,700 $1,768 $1,821
==============================================================================================
(c) Paid (cumulative) as of (3):
- -------------------------------
One year later 25% 17% 18% 21% 20% 22% 25% 20% 20% 20% -%
Two years later 33 33 33 34 34 37 37 33 33 - -
Three years later 42 45 42 44 45 45 45 42 - - -
Four years later 51 52 50 52 50 52 51 - - - -
Five years later 56 58 56 56 56 56 - - - - -
Six years later 61 63 60 60 60 - - - - - -
Seven years later 65 65 64 64 - - - - - - -
Eight years later 67 69 67 - - - - - - - -
Nine years later 70 72 - - - - - - - - -
Ten years later 73% -% -% -% -% -% -% -% -% -% -%
==============================================================================================
(d) Liability reestimated (i.e.,
cumulative payments plus
reestimated ending liability)
as of (4):
- --------------------------------
One year later 109% 103% 104% 101% 98% 100% 99% 97% 95% 95% -%
Two years later 120 111 104 97 99 100 97 94 91 - -
Three years later 117 110 100 98 98 99 96 93 - - -
Four years later 117 106 101 98 98 99 97 - - - -
Five years later 114 108 101 99 99 100 - - - - -
Six years later 116 108 102 99 100 - - - - - -
Seven years later 115 109 103 101 - - - - - - -
Eight years later 117 111 105 - - - - - - - -
Nine years later 118 112 - - - - - - - - -
Ten years later 120% -% -% -% -% -% -% -% -% -% -%
=============================================================================================
(e) Redundancy (deficiency)(5):
For each year-end at (a): -20% -12% -5% -1% -% -% 3% 7% 9% 5% -%
=============================================================================================
Average for all year-ends
at (a): 0.4%
====
_____
(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).
</TABLE>
<PAGE>
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.
<TABLE>
<CAPTION>
($ in Millions)
---------------------------------
Years Ended December 31,
---------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Amount of reserves for unpaid claims and claim adjustment expenses
at the beginning of each year, net of reinsurance losses recoverable . $ 1,768.3 $ 1,700.8 $ 1,573.9
--------- --------- ---------
Incurred claims and claim adjustment expenses:
Provisions for insured events of the current year. . . . . . . . . . . 684.7 705.8 721.7
Change in provision for insured events of prior years. . . . . . . . . (92.6) (89.1) (51.6)
--------- --------- ---------
Total incurred claims and claim adjustment expenses. . . . . . . . 592.1 616.7 670.0
--------- --------- ---------
Payments:
Claims and claim adjustment expenses attributable to insured
events of the current year . . . . . . . . . . . . . . . . . . . . . 207.1 236.6 246.2
Claims and claim adjustment expenses attributable to insured
events of prior years . . . . . . . . . . . . . . . . . . . . . . . 332.4 312.4 296.9
--------- --------- ---------
Total payments . . . . . . . . . . . . . . . . . . . . . . . . . . 539.5 549.0 543.1
--------- --------- ---------
Amount of reserves for unpaid claims and claim adjustment expenses
at the end of each year (2), net of reinsurance losses recoverable . . 1,820.9 1,768.3 1,700.8
Reinsurance losses recoverable (3) . . . . . . . . . . . . . . . . . . . 1,311.8 1,407.4 1,403.0
--------- --------- ---------
Amount of reserves for unpaid claims and claim adjustment expenses . . . $ 3,132.7 $ 3,175.7 $ 3,103.8
========= ========= =========
__________
(1) Excluding unallocated loss adjustment expense reserves.
(2) Reserves for incurred but not reported losses amounted to approximately 31.1%, 30.4% and 30.7% of the totals
shown as of December 31, 1995, 1994 and 1993, respectively.
(3) See Item 6 - Selected Financial Data, note (b).
</TABLE>
The data in the two tables above, incorporates the Corporation's estimates
for various asbestosis and environmental impairment ("A&E") claims 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 A&E 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, 1995, the Corporation's aggregate
indemnity and loss adjustment expense reserves specifically identified with
these A&E exposures amounted to approximately $87.4 million gross, and $60.1
million net of reinsurance. Based on average annual claims payments during the
five most recent calendar years, such reserves represented 10.7 years (gross)
and 12.7 years (net) of average annual claims payments.
Old Republic disagrees with the allegations of liability on virtually all
A&E 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.
<PAGE>
Individual insurance companies and others who have evaluated the potential
costs of litigating and settling A&E claims have noted with increasing concern
the possibility that resolution of such claims, by applying liability retro-
actively in the context of the existing insurance system, could likely bank-
rupt or undermine seriously the financial condition of the property and
liability insurance industry. In 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 claims in particular. In recent times, the Executive Branch
and/or the United States Congress have proposed changes in the legislation and
rules affecting environmental claims. As of December 31, 1995, however, there
is no solid evidence to suggest that forthcoming changes might mitigate or
reduce some or all of these claim exposures.
Because of the above 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.
<TABLE>
<CAPTION>
Consolidated Investments
($ in Millions)
December 31,
- ------------------------------------------------------------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Held to Maturity
Fixed Maturity Securities:
Corporate. . . . . . . . . . . . . . . . . . . . . . $ - $ 1,356.2 $ 1,348.5
Utilities. . . . . . . . . . . . . . . . . . . . . . 995.5 919.3 883.0
Tax-Exempt . . . . . . . . . . . . . . . . . . . . . 717.8 450.7 276.9
Redeemable Preferred Stocks. . . . . . . . . . . . . .7 .8 1.2
---------- ---------- ----------
1,714.1 2,727.2 2,509.8
---------- ---------- ----------
Other Invested Assets:
Mortgage Loans . . . . . . . . . . . . . . . . . . . 11.8 14.0 17.0
Policy Loans . . . . . . . . . . . . . . . . . . . . 2.1 2.1 2.1
Collateral Loans . . . . . . . . . . . . . . . . . . .3 .4 .5
Sundry . . . . . . . . . . . . . . . . . . . . . . . 12.6 10.7 -
---------- ---------- ----------
26.9 27.3 19.8
---------- ---------- ----------
Total held to maturity . . . . . . . . . . . . . . . 1,741.1 2,754.6 2,529.6
---------- ---------- ----------
Available for Sale
Fixed Maturity Securities:
U.S. & Canadian Governments. . . . . . . . . . . . . 812.4 620.3 642.4
Corporate . . . . . . . . . . . . . . . . . . . . . 1,333.6 - -
---------- ---------- ----------
2,146.0 620.3 642.4
---------- ---------- ----------
Equity Securities:
Perpetual Preferred Stocks . . . . . . . . . . . . . 4.4 4.5 3.8
Common Stocks1 . . . . . . . . . . . . . . . . . . . 21.7 259.2 188.0
---------- ---------- ----------
126.1 263.8 191.9
---------- ---------- ----------
Short-term Investments . . . . . . . . . . . . . . . 312.7 172.1 254.3
---------- ---------- ----------
Total available for sale . . . . . . . . . . . . . . 2,584.9 1,056.2 1,088.7
---------- ---------- ----------
Total Investments . . . . . . . . . . . . . . . . . $ 4,326.0 $ 3,810.8 $ 3,618.4
========== ========== ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Sources of Consolidated Investment Income
($ in Millions)
Years Ended December 31,
- ------------------------------------------------------------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Fixed Maturity Securities:
Taxable . . . . . . . . . . . . . . . . . . . $ 203.2 $ 189.6 $ 192.6
Tax-Exempt. . . . . . . . . . . . . . . . . . 27.1 18.6 12.5
Redeemable Preferred Stocks . . . . . . . . . - - -
---------- ---------- ----------
230.4 208.2 205.2
---------- ---------- ----------
Equity Securities:
Perpetual Preferred Stocks . . . . . . . . . .4 .5 .2
Common Stocks . . . . . . . . . . . . . . . . 5.8 7.0 4.7
---------- ---------- ----------
6.3 7.5 5.0
---------- ---------- ----------
Other Investment Income:
Interest on Short-term Investments. . . . . . 13.6 9.7 8.7
Sundry . . . . . . . . . . . . . . . . . . . 8.4 7.9 7.0
---------- ---------- ----------
22.0 17.7 15.7
---------- ---------- ----------
Gross Investment Income . . . . . . . . . . . 258.7 233.6 226.0
Less: Investment Expenses (a) . . . . . . . . 6.8 6.0 5.2
---------- ---------- ----------
Net Investment Income . . . . . . . . . . . . $ 251.9 $ 227.5 $ 220.7
========== ========== ==========
__________
(a) Investment expenses consist primarily of personnel costs and investment custody service fees.
</TABLE>
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, 1995 and December 31, 1994, 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, recent years'
dispositions of portfolio investments held to maturity are caused principally
by calls prior to maturity by issuers.
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). In November 1995, the Company again reevaluated the classification of
invested assets, as permitted by a Special Report issued by the Financial
Accounting Standards Board (FASB) in November 1995. As a result, additional
fixed maturity securities previously categorized as "held to maturity" were
reclassified to the "available for sale" category; the amortized cost of the
securities so reclassified was $1,365.7, their fair market value was $1,394.2,
and the related net of deferred tax unrealized gain of $18.5 was credited
directly to a separate account in shareholders equity at December 31, 1995.
Prior years' balance sheets and investment classifications have not been
restated nor reclassified to reflect these changes. The Company's invested
assets have been classified as either "held to maturity" or "available for
sale" as of December 31, 1995, 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, 1995 and December 31, 1994, are shown in the
following tables. These investments, $3.8 billion and $3.3 billion at December
31, 1995 and 1994, respectively, represented approximately 59% and 53%,
respectively, of consolidated assets, and 79% and 69%, respectively, of
consolidated liabilities as of such dates.
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
Independent Ratings (a)
- ---------------------------------------------------------------------------------
December 31,
------------------------
1995 1994
------ ------
(% of total portfolio)
<S> <C> <C>
Aaa . . . . . . . . . . . . . . . . . . . . . . . . 30.9% 30.1%
Aa. . . . . . . . . . . . . . . . . . . . . . . . . 28.2 28.8
A . . . . . . . . . . . . . . . . . . . . . . . . . 34.1 33.1
Baa . . . . . . . . . . . . . . . . . . . . . . . . 6.0 6.9
------ ------
Total investment grade. . . . . . . . . . . . . . . 99.2 98.9
All others (b) . . . . . . . . . . . . . . . . . . .8 1.1
------ ------
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.
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Maturity Distribution
- --------------------------------------------------------------------------------
December 31,
------------------------
1995 1994
------ ------
(% of total portfolio)
<S> <C> <C>
Due in one year or less . . . . . . . . . . . . . . 7.7% 5.2%
Due after one year through five years . . . . . . . 43.1 42.0
Due after five years through ten years. . . . . . . 47.5 50.1
Due after ten years through fifteen years . . . . . .7 1.4
Due after fifteen years . . . . . . . . . . . . . . 1.0 1.3
------ ------
100.0% 100.0%
====== ======
Average life (years). . . . . . . . . . . . . . . . 4.7 5.1
====== ======
</TABLE>
(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 controlled 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, and loan credit guaranty insurance, 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 1995.
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.
<PAGE>
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 231 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 services.
During 1995, approximately 50% of title insurance premiums and fees were
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.
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 for large parts of its business.
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 50 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:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Geographical Distribution of Direct Premiums Written
- --------------------------------------------------------------------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
United States:
Northeast. . . . . . . . . . . . . . . . . . . . . 5.0% 5.3% 4.7%
Mid-Atlantic . . . . . . . . . . . . . . . . . . . 8.9 10.0 10.6
Southeast. . . . . . . . . . . . . . . . . . . . . 16.6 16.2 15.5
Southwest. . . . . . . . . . . . . . . . . . . . . 13.1 14.3 14.1
East North Central . . . . . . . . . . . . . . . . 17.7 16.2 14.7
West North Central . . . . . . . . . . . . . . . . 16.3 15.2 16.3
Mountain . . . . . . . . . . . . . . . . . . . . . 8.5 8.4 8.0
Western. . . . . . . . . . . . . . . . . . . . . . 11.0 12.5 14.6
Foreign (Principally Canada) . . . . . . . . . . . 2.9 1.9 1.5
------ ------ ------
Total . . . . . . . . . . . . . . . . . . . . . . . 100.0% 100.0% 100.0%
====== ====== ======
</TABLE>
<PAGE>
(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
underwriting 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-$750,000; and loan credit
guaranty-$200,000. Substantially all the mortgage guaranty insurance business is
retained, with the exposure on any one risk currently averaging less than
$22,000. 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. 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.
<PAGE>
(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 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.
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 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, 1995, Old Republic employed approximately 5,460
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.
<PAGE>
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 66% 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,
1995 was approximately $12.8 million.
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 50 Senior Vice President, Chief Financial Officer
since 1990 and Treasurer since 1993.
Anthony F. Colao 68 Senior Vice President, and Director since 1987.
Spencer LeRoy, III 49 Senior Vice President, General Counsel, and
Secretary since 1992.
William F. Schumann 56 Senior Vice President since 1989. President
since 1974 of Old Republic Insured Credit
Services, Inc., a wholly-owned subsidiary.
William A. Simpson 54 Senior Vice President/Mortgage Guaranty, and
Director since 1980. President since 1972 of
Republic Mortgage Insurance Company, a
wholly-owned subsidiary.
A. C. Zucaro 56 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.
<PAGE>
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:
<TABLE>
<CAPTION>
Closing Price
--------------------- Cash
High Low Dividends
------ ------ ---------
<S> <C> <C> <C>
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
====== ====== =========
1st quarter 1995. . . . . . . . $25.13 $21.13 $ .12
2nd quarter 1995. . . . . . . . 26.38 24.25 .13
3rd quarter 1995. . . . . . . . 29.50 25.50 .13
4th quarter 1995. . . . . . . . $35.50 $27.13 $ .13
====== ====== =========
</TABLE>
As of January 31, 1996, there were 3,895 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, 1995.
<PAGE>
<TABLE>
<CAPTION>
Item 6-Selected Financial Data
(All amounts, except common share data, are expressed in millions)
Years Ended December 31
- -----------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
FINANCIAL POSITION:
Cash and Invested Assets (a) . . . $ 4,415.2 $ 3,906.4 $ 3,723.0 $ 3,332.5 $ 2,933.7
Other Assets (b) . . . . . . . . . 2,178.2 2,356.5 2,375.3 809.1 779.5
Total Assets . . . . . . . . . . . 6,593.5 6,262.9 6,098.3 4,141.6 3,713.2
Liabilities, Other than Debt (b) . 4,587.9 4,543.4 4,480.5 2,698.0 2,503.0
Debt and Debt Equivalents. . . . . 320.5 314.7 282.7 277.8 247.6
Total Liabilities. . . . . . . . . 4,908.4 4,858.1 4,763.3 2,975.8 2,750.6
Preferred Stock . . . . . . . . . 72.5 75.4 78.0 80.8 80.8
Common Shareholders' Equity. . . . 1,612.5 1,329.3 1,256.9 1,084.9 881.7
Total Capitalization (c) . . . . . $ 2,005.6 $ 1,719.5 $ 1,617.7 $ 1,443.6 $ 1,210.2
========== ========== ========== ========== ==========
---------------------------------------------------------------------------------------------------
RESULTS OF OPERATIONS:
Net Premiums and Fees Earned . . . $ 1,374.0 $ 1,423.2 $ 1,445.7 $ 1,291.9 $ 1,113.4
Net Investment and Other Income. . 272.1 248.0 250.2 262.3 239.9
Realized Investment Gains. . . . . 49.7 7.7 40.2 62.8 21.1
Net Revenues . . . . . . . . . . . 1,695.9 1,679.0 1,736.3 1,617.0 1,374.5
Benefits, Claims, Settlement
Expenses and Dividends . . . . . . 747.9 761.2 811.3 752.1 691.8
Underwriting and Other Expenses. . 631.9 691.9 681.6 614.2 507.3
Income Taxes (d) . . . . . . . . . 103.6 73.4 78.0 75.0 45.2
Income Before Item Below . . . . . 212.7 151.0 166.4 174.7 131.0
Accounting Changes (e) . . . . . . - - 8.6 - -
---------- ---------- ---------- ---------- ----------
Net Income . . . . . . . . . . . . $ 212.7 $ 151.0 $ 175.1 $ 174.7 $ 131.0
========== ========== ========== ========== ==========
---------------------------------------------------------------------------------------------------
COMMON SHARE DATA (f):
Net Income:
Primary Earnings (g):
Income Before Item Below . . . . . $ 3.63 $ 2.55 $ 2.83 $ 3.09 $ 2.48
Accounting Changes . . . . . . . . - - .15 - -
---------- ---------- ---------- ---------- ----------
Net Income . . . . . . . . . . . . $ 3.63 $ 2.55 $ 2.98 $ 3.09 $ 2.48
========== ========== ========== ========== ==========
Fully Diluted Earnings (h):
Income Before Item Below . . . . . $ 3.42 $ 2.44 $ 2.69 $ 2.95 $ 2.36
Accounting Changes . . . . . . . . - - .14 - -
---------- ---------- ---------- ---------- ----------
Net Income . . . . . . . . . . . . $ 3.42 $ 2.44 $ 2.83 $ 2.95 $ 2.36
========== ========== ========== ========== ==========
Average Common and Equivalent
Shares Outstanding:Primary . . . . 57,273,854 57,207,702 57,077,542 54,516,581 52,408,404
Fully Diluted . 62,068,538 61,657,490 61,519,432 58,317,906 56,480,042
========== ========== ========== ========== ==========
Dividends:Cash . . . . . . . . . . $ .51 $ .47 $ .43 $ .39 $ .37
========== ========== ========== ========== ==========
Stock . . . . . . . . . -% -% -% 100% 10%
========== ========== ========== ========== ==========
Book Value . . . . . . . . . . . . $ 30.56 $ 25.79 $ 24.25 $ 21.40 $ 18.81
========== ========== ========== ========== ==========
Common Shares Outstanding. . . . . 52,762,769 51,536,412 51,844,001 50,692,562 46,896,184
========== ========== ========== ========== ==========
- -----------------------------------------------------------------------------------------------------
See Notes on Following Page
</TABLE>
<PAGE>
Notes to Item 6-Selected Financial Data
- -------------------------------------------------------------------------------
(a) Consists of cash, investments and investment income due and accrued;
(b) The Company adopted certain reporting changes mandated by accounting
regulatory authorities which served to increase assets and liabilities by
equal amounts of approximately $1.4 billion at December 31, 1995, and $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 and $3.6 ($.07 per share) in 1991, 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 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, 1995. 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 $4.9
in 1995, $5.1 in 1994, $5.2 in 1993, $6.0 in 1992 and $1.3 in 1991;
(h) Calculated after deduction of preferred stock dividend requirements and
after adjustment for post-tax convertible debentures interest of $.6 in
1995, $.9 in 1994, $1.0 in 1993, $2.6 in 1992 and $(1.9) in 1991.
<PAGE>
Item 7-Management Analysis of Financial Position and Results of Operations
($ 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), Mortgage
Guaranty, Title, 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. The Company also 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.
In November 1995, the Company reevaluated the classification of invested
assets, as permitted by a Special Report issued by the FASB in November 1995.
As a result, the Company reclassified from "held to maturity" to "available for
sale" certain fixed maturity securities with an amortized cost of $1,365.7, fair
value of $1,394.2 and an unrealized gain of $28.4. The unrealized gain, net of
deferred income taxes of $9.9, has been credited directly to a separate account
in the common shareholders' equity section of the balance sheet in the final
quarter of 1995.
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.
In the fourth quarter of 1995, the Company's Mortgage Guaranty Group
adopted the accrual method for recording past-due premium revenues and the
related premium receivable arising from new monthly premium policies. This new
payment mode has emerged as a significant factor for the mortgage guaranty
industry since mid-1994. Before adoption of this accrual method, past-due
premiums were recognized on receipt of cash. With the adoption of this accrual
method, a cumulative increase in net premiums written of $9.8 million, net
premiums earned of $6.3 million, and post-tax income of $3.9 million or 6 cents
per fully diluted share was reflected in the Company's final quarter and the
year of 1995.
FINANCIAL POSITION
Old Republic's financial position at December 31, 1995 reflected increases
in assets of 5.3%, liabilities of 1.0%, and common shareholders' equity of 21.3%
when compared to the immediately preceding year-end. At December 31, 1995 and
1994, cash and invested assets represented 67.0% and 62.4% 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 1995 and
1994, 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 1995,
Old Republic's commitment to equity securities decreased by 52.2% vis-a-vis the
related invested balance at year-end 1994. As of December 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.
<PAGE>
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.
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 $2,005.6 at December 31, 1995 consisted of
debt and debt equivalents of $320.5, redeemable convertible preferred stock of
$17.0 (excluding $11.7 of such stock classified as a debt
equivalent), convertible preferred stock of $.6 , cumulative preferred stock of
$54.8, and common shareholders' equity of $1,612.5. 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, the conversion of preferred stock to common stock and an
increase during 1995 in the carrying value of fixed maturity and equity
securities stated at fair value.
The Corporation acquired $.9 and $8.5 of common stock in 1995 and 1994,
respectively and $2.6 of cumulative preferred stock in 1994 in open market
transactions. As of year-end 1995, a standing authorization by the Company's
Board of Directors permits Old Republic to reacquire additional amounts of such
shares for a total of up to $38.0 through May 1996.
In February 1996, the Company called for redemption its 10% debentures of
2018 ($74.0 million principal amount) and its 5.75% convertible subordinated
debentures of 2002 ($110.0 million principal amount); redemption of the former
will be effected with available funds, while the latter are expected to be
converted into approximately 4.3 million Old Republic common shares. As a result
of these expected redemptions and conversions, the Company's debt will decline
by $184.0 million while its common shareholders equity account will rise by
$110.0 million. These transactions are not expected to have a material effect
on Old Republic's 1996 earnings. Later in 1996, the Company may, at its sole
option, redeem all or part of approximately $54.8 million of its Series "H"
cumulative preferred stock and $29.6 million principal amount of its 11.5%
debentures maturing in 2015.
RESULTS OF OPERATIONS
Revenues:
Net premiums and fees earned decreased by 3.5% and 1.6% in 1995 and 1994 and
increased by 11.9% in 1993. In 1993 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 and 1995, lower
property and liability premium growth was due to a continuation of a soft
premium rate environment for most insurance coverages and lower participation
in involuntary market pools. For the past three years, mortgage guaranty
premiums have increased due to a rise in the amount of renewal and new business,
and market expansion. Depressed conditions in the large California housing
market and much lower refinancing activity nationwide resulted in reduced title
insurance revenues in 1995 and 1994. Greater housing and mortgage refinancing
activity during 1993 had led to higher revenues in the title segment. 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 10.7% and 3.1% in 1995 and 1994 and was
relatively flat in 1993. For each of the past three years, this revenue source
was affected 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 6.2%, 6.1% and 6.4% for the years ended December
31, 1995, 1994 and 1993, respectively. This yield pattern reflects at once the
relatively short maturity of Old Republic's fixed maturity securities portfolio
and changes in interest rates at various times during the past three years.
While the Company's investment policies have not been designed to maximize
realized investment gains, such gains were higher in 1995 and 1993 than those
realized in 1994. Dispositions of securities have been
<PAGE>
caused principally by calls prior to maturity by issuers and by sales of equity
securities. In 1995, approximately 59% of total fixed maturity securities
dispositions represented contractual maturities and early calls of existing
holdings; for the year 1994 these amounted to approximately 64%.
Expenses:
Consolidated benefit, claim, and related settlement costs, as a percentage
of net premiums and fees earned, were approximately 54% in 1995, 53% in 1994 and
56% in 1993. This consolidated ratio was affected principally by an improving
claim ratio for 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 1995 and 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 loss ratio rose in 1995 and 1994 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 title insurance loss ratio in 1995 and 1994 was affected by
favorable trends in claims frequency and severity for business underwritten
since 1992, while higher than normal claim provisions in 1993 added
approximately 3 percentage points to this group's loss ratio.
The ratio of consolidated underwriting, acquisition, and insurance expenses
to net premiums and fees earned was approximately 44% in 1995, 47% in 1994 and
45% in 1993. Variations in these ratios reflect a continually changing mix of
coverages sold and attendant costs of producing business. During the past three
years the property and liability expense ratio has remained relatively flat and
that of the mortgage guaranty segment has been declining moderately. The title
insurance expense ratio was higher in 1994 and 1995 as premiums and fees volume
in this segment declined at a faster rate than operating costs.
Pre-Tax and Net Income:
Income before taxes decreased by 7% and 3% in 1994 and 1993, respectively,
and increased by 40% in 1995. General insurance results have trended up during
the past five years and have continued as the largest contributor to
consolidated earnings, principally as a result of greater investment income; in
1995 and 1994, however, improved earnings in this segment were also affected
favorably by better underwriting results. The mortgage guaranty segment
reflected significantly improved earnings in each of the last three years due to
increased revenues, and, as noted above, a declining expense ratio. Title
insurance operating results were much reduced in 1995 and 1994 due to the
previously noted decline in revenues, while they increased in 1993 as a result
of much greater mortgage refinancing activity. Life and disability operations
have posted relatively flat earnings in the past three years. Consolidated
pre-tax income for 1995 and 1993 was also affected positively by greater than
normal realization of investment gains.
The effective consolidated income tax rates were 33% in 1995 and 1994 and
32% in 1993. 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.
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 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.
<PAGE>
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 . . . . . . . . . . . . . . . . . . 48
<PAGE>
<TABLE>
<CAPTION>
Old Republic International Corporation and Subsidiaries
Consolidated Balance Sheets ($ in Millions)
- -----------------------------------------------------------------------------------
December 31,
-----------------------
1995 1994
---------- ----------
<S> <C> <C>
Assets
Investments:
Held to maturity:
Fixed maturity securities (at amortized cost)
(fair value: $1,759.0 and $2,582.6) . . . . . . . . . . . $ 1,714.1 $ 2,727.2
Other long-term investments (at cost). . . . . . . . . . . 26.9 27.3
---------- ----------
1,741.1 2,754.6
---------- ----------
Available for sale:
Fixed maturity securities (at fair value)
(cost: $2,068.9 and $646.8) . . . . . . . . . . . . . . . 2,146.0 620.3
Equity securities (at fair value)
(cost: $95.7 and $254.7) . . . . . . . . . . . . . . . . 126.1 263.8
Short-term investments
(at fair value which approximates cost) . . . . . . . . . 312.7 172.1
---------- ----------
2,584.9 1,056.2
---------- ----------
4,326.0 3,810.8
---------- ----------
Other Assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.4 31.1
Securities and indebtedness of related parties . . . . . . 40.0 41.1
Accrued investment income . . . . . . . . . . . . . . . . 69.7 64.3
Accounts and notes receivable. . . . . . . . . . . . . . . 273.6 244.0
Federal income tax recoverable:Current . . . . . . . . . . - 4.8
Deferred. . . . . . . . . . - 72.4
Reinsurance balances and funds held . . . . . . . . . . . 125.1 142.4
Reinsurance recoverable:Paid losses . . . . . . . . . . . 24.7 25.6
Policy and claim reserves . . . . . . . . . . . . . . . . 1,416.1 1,526.3
Deferred policy acquisition costs. . . . . . . . . . . . . 107.8 101.3
Sundry assets . . . . . . . . . . . . . . . . . . . . . . 190.6 198.1
2,267.4 2,452.0
---------- ----------
Total Assets . . . . . . . . . . . . . . . . . . . . . . $ 6,593.5 $ 6,262.9
========== ==========
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Old Republic International Corporation and Subsidiaries
Consolidated Balance Sheets ($ in Millions) (Continued)
- ------------------------------------------------------------------------------------
December 31,
-----------------------
1995 1994
---------- ----------
<S> <C> <C>
Liabilities, Preferred Stock, and Common Shareholders' Equity
Liabilities:
Future policy benefits . . . . . . . . . . . . . . . . . . $ 186.0 $ 184.9
Losses, claims and settlement expenses . . . . . . . . . . 3,519.8 3,514.7
Unearned premiums . . . . . . . . . . . . . . . . . . . . 406.7 405.5
Other policyholders' benefits and funds. . . . . . . . . . 75.4 79.1
---------- ----------
Total policy liabilities and accruals4, . . . . . . . . . 188.0 4,184.3
Commissions, expenses, fees and taxes. . . . . . . . . . . 110.3 106.3
Reinsurance balances and funds . . . . . . . . . . . . . . 169.3 162.2
Federal income tax payable:Current . . . . . . . . . . . . 11.5 -
Deferred. . . . . . . . . . . . 10.1 -
Debt and debt equivalents . . . . . . . . . . . . . . . . 320.5 314.7
Sundry liabilities . . . . . . . . . . . . . . . . . . . . 98.4 90.4
Commitments and contingent liabilities . . . . . . . . . . - -
---------- ----------
Total Liabilities . . . . . . . . . . . . . . . . . . . . 4,908.4 4,858.1
---------- ----------
Preferred Stock:
Redeemable convertible preferred stock (*) . . . . . . . . 17.0 16.8
Convertible preferred stock (*) . . . . . . . . . . . . . .6 3.8
Cumulative preferred stock (*) . . . . . . . . . . . . . . 54.8 54.8
---------- ----------
Total Preferred Stock . . . . . . . . . . . . . . . . . . 72.5 75.4
---------- ----------
Common Shareholders' Equity:
Common stock(*) . . . . . . . . . . . . . . . . . . . . . . 58.8 57.6
Additional paid-in capital. . . . . . . . . . . . . . . . . 463.4 456.9
Net unrealized appreciation (depreciation) of securities. . 70.3 (10.4)
Retained earnings . . . . . . . . . . . . . . . . . . . . . 1,058.3 865.0
Treasury stock (at cost). . . . . . . . . . . . . . . . . . (38.4) (39.8)
---------- ----------
Total Common Shareholders' Equity . . . . . . . . . . . . . 1,612.5 1,329.3
---------- ----------
Total Liabilities, Preferred Stock and
Common Shareholders' Equity . . . . . . . . . . . . . . . $ 6,593.5 $ 6,262.9
========== ==========
__________
(*) At December 31, 1995 and 1994, there were 75,000,000 shares of $0.01 par value
preferred stock authorized, of which 25,152,712 in 1995 and 25,632,708 in 1994
were redeemable and/or convertible and cumulative preferred shares issued and
outstanding. As of the same dates, there were 250,000,000 shares of common
stock, $1.00 par value, authorized, of which 58,811,328 in 1995 and
57,661,291 in 1994 were issued. At December 31, 1995 and 1994 there were
50,000,000 shares of Class B Common Stock, $1.00 par value, authorized, of
which no shares were issued. Common shares classified as treasury stock were
6,048,559 and 6,124,879 as of December 31, 1995 and 1994, respectively.
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Old Republic International Corporation and Subsidiaries
Consolidated Statements of Income ($ in Millions, Except Share Data)
- ----------------------------------------------------------------------------------------------
Years Ended December 31,
------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Net premiums earned . . . . . . . . . . . . . . . . . . . . . . . $ 1,251.7 $ 1,282.9 $ 1,246.0
Title, escrow, and other fees . . . . . . . . . . . . . . . . . . 122.2 140.3 199.7
Net investment income . . . . . . . . . . . . . . . . . . . . . . 251.9 227.5 220.7
Realized investment gains . . . . . . . . . . . . . . . . . . . . 49.7 7.7 40.2
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . 20.2 20.4 29.5
---------- ---------- ----------
1,695.9 1,679.0 1,736.3
---------- ---------- ----------
Benefits, Losses and Expenses:
Benefits, claims, and settlement expenses . . . . . . . . . . . . 740.3 753.5 817.8
Dividends to policyholders . . . . . . . . . . . . . . . . . . . 7.5 7.6 (6.4)
Underwriting, acquisition, and insurance expenses . . . . . . . . 605.0 668.5 656.7
Interest and other charges . . . . . . . . . . . . . . . . . . . 26.9 23.3 24.8
---------- ---------- ----------
1,379.9 1,453.1 1,492.9
---------- ---------- ----------
Income before income taxes and items below. . . . . . . . . . . . 316.0 225.8 243.3
---------- ---------- ----------
Income Taxes:Currently payable . . . . . . . . . . . . . . . . . 63.8 41.8 68.3
Deferred . . . . . . . . . . . . . . . . . . . . . . 39.7 31.5 9.6
---------- ---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . 103.6 73.4 78.0
---------- ---------- ----------
Income before items below . . . . . . . . . . . . . . . . . . . . 212.4 152.4 165.3
Equity in earnings of unconsolidated subsidiaries
and minority interests . . . . . . . . . . . . . . . . . . . . . .2 (1.4) 1.1
---------- ---------- ----------
Income before cumulative effect of accounting changes . . . . . . 212.7 151.0 166.4
Cumulative effect of accounting changes . . . . . . . . . . . . . - - 8.6
---------- ---------- ----------
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 212.7 $ 151.0 $ 175.1
========== ========== ==========
Net Income Per Share:
Primary:
Before cumulative effect of accounting changes. . . . . . . . . $ 3.63 $ 2.55 $ 2.83
Cumulative effect of accounting changes . . . . . . . . . . . . - - .15
---------- ---------- ----------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3.63 $ 2.55 $ 2.98
========== ========== ==========
Fully Diluted:
Before cumulative effect of accounting changes . . . . . . . . . $ 3.42 $ 2.44 $ 2.69
Cumulative effect of accounting changes . . . . . . . . . . . . - - .14
---------- ---------- ----------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3.42 $ 2.44 $ 2.83
========== ========== ==========
Average number of common and common
equivalent shares outstanding:Primary . . . . . . . . . . . . . . 57,273,854 57,207,702 57,077,542
========== ========== ==========
Fully Diluted . . . . . . . . . . . 62,068,538 61,657,490 61,519,432
========== ========== ==========
Dividends Per Common Share:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .51 $ .47 $ .43
========== ========== ==========
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Old Republic International Corporation and Subsidiaries
Consolidated Statements of Preferred Stock
and Common Shareholders' Equity ($ in Millions)
- -----------------------------------------------------------------------------------------------------------
Years Ended December 31,
------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Redeemable Convertible Preferred Stock:
Balance, beginning of year. . . . . . . . . . . . . . . . . . . . $ 16.8 $ 16.6 $ 18.7
Amortization to redemption value capitalized . . . . . . . . . . (1.1) (1.1) (1.0)
Converted into common stock. . . . . . . . . . . . . . . . . . . (0.6) - (6.3)
Reclassification from debt equivalent. . . . . . . . . . . . . . 2.1 1.3 5.2
---------- ---------- ----------
Balance, end of year . . . . . . . . . . . . . . . . . . . . . . $ 17.0 $ 16.8 $ 16.6
========== ========== ==========
Convertible Preferred Stock:
Balance, beginning of year . . . . . . . . . . . . . . . . . . . $ 3.8 $ 3.9 $ 4.5
Exercise of stock options . . . . . . . . . . . . . . . . . . . .1 .2 -
Converted into common stock . . . . . . . . . . . . . . . . . . (3.2) (.3) (.6)
Redemption of convertible preferred stock. . . . . . . . . . . . - - -
---------- ---------- ----------
Balance, end of year . . . . . . . . . . . . . . . . . . . . . . $ .6 $ 3.8 $ 3.9
========== ========== ==========
Cumulative Preferred Stock:
Balance, beginning of year. . . . . . . . . . . . . . . . . . . . $ 54.8 $ 57.5 $ 57.5
Stock acquired during the year . . . . . . . . . . . . . . . . . - (2.6) -
---------- ---------- ----------
Balance, end of year . . . . . . . . . . . . . . . . . . . . . . $ 54.8 $ 54.8 $ 57.5
========== ========== ==========
Common Stock:
Balance, beginning of year. . . . . . . . . . . . . . . . . . . . $ 57.6 $ 57.5 $ 56.3
Dividend reinvestment plan . . . . . . . . . . . . . . . . . . . - - -
Exercise of stock options. . . . . . . . . . . . . . . . . . . . .1 - .3
Acquisition of subsidiary. . . . . . . . . . . . . . . . . . . . .5 - -
Conversion of convertible preferred stock. . . . . . . . . . . . .4 - .8
---------- ---------- ----------
Balance, end of year . . . . . . . . . . . . . . . . . . . . . . $ 58.8 $ 57.6 $ 57.5
========== ========== ==========
Additional Paid-in Capital:
Balance, beginning of year. . . . . . . . . . . . . . . . . . . . $ 456.9 $ 455.2 $ 444.6
Dividend reinvestment plan . . . . . . . . . . . . . . . . . . . .4 .4 .4
Exercise of stock options. . . . . . . . . . . . . . . . . . . . 2.4 .8 3.8
Acquisition of subsidiary. . . . . . . . . . . . . . . . . . . . .1 - -
Conversion of convertible preferred stock. . . . . . . . . . . . 3.5 .3 6.2
---------- ---------- ----------
Balance, end of year . . . . . . . . . . . . . . . . . . . . . . $ 463.4 $ 456.9 $ 455.2
========== ========== ==========
Net Unrealized Appreciation (Depreciation) of Securities:
Balance, beginning of year. . . . . . . . . . . . . . . . . . . . $ (10.4) $ 25.2 $ 8.9
Change for the year, net of deferred tax if any. . . . . . . . . 80.7 (35.7) 16.3
---------- ---------- ----------
Balance, end of year . . . . . . . . . . . . . . . . . . . . . . $ 70.3 $ (10.4) $ 25.2
========== ========== ==========
Retained Earnings:
Balance, beginning of year. . . . . . . . . . . . . . . . . . . . $ 865.0 $ 750.2 $ 606.3
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . 212.7 151.0 175.1
Dividends on common stock. . . . . . . . . . . . . . . . . . . . (26.7) (24.5) (21.6)
Dividends on preferred stock . . . . . . . . . . . . . . . . . . (6.7) (7.0) (7.2)
Acquisition of subsidiary . . . . . . . . . . . . . . . . . . . 10.6 - -
Currency translation adjustments . . . . . . . . . . . . . . . . 3.3 (4.6) (2.2)
---------- ---------- ----------
Balance, end of year . . . . . . . . . . . . . . . . . . . . . . $ 1,058.3 $ 865.0 $ 750.2
========== ========== ==========
Treasury Stock:
Balance, beginning of year. . . . . . . . . . . . . . . . . . . . $ (39.8) $ (31.3) $ (31.3)
Acquired during the year . . . . . . . . . . . . . . . . . . . . (0.9) (8.5) -
Acquisition of subsidiary. . . . . . . . . . . . . . . . . . . . 2.3 - -
---------- ---------- ----------
Balance, end of year . . . . . . . . . . . . . . . . . . . . . . $ (38.4) $ (39.8) $ (31.3)
========== ========== ==========
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Old Republic International Corporation and Subsidiaries
Consolidated Statements of Cash Flows ($ in Millions)
- -----------------------------------------------------------------------------------------------------------
Years Ended December 31,
------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 212.7 $ 151.0 $ 175.1
Change in non-cash items:
Deferred policy acquisition costs . . . . . . . . . . . . . . . . (6.8) (5.7) (16.5)
Premiums and other receivables . . . . . . . . . . . . . . . . . (29.8) (7.8) (58.1)
Unpaid claims and related items . . . . . . . . . . . . . . . . . 104.2 107.5 154.0
Future policy benefits and policyholders' funds . . . . . . . . . 15.3 (18.6) 47.5
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 56.3 9.2 (.7)
Reinsurance balances and funds. . . . . . . . . . . . . . . . . . 24.8 11.1 75.9
Accounts payable, accrued expenses and other. . . . . . . . . . . 18.9 13.7 16.7
---------- ---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 395.6 260.4 394.0
---------- ---------- ----------
Cash flows from investing activities:
Sales of fixed maturity securities:
Held to maturity:
Maturities and early calls . . . . . . . . . . . . . . . . . . . 123.8 159.3 366.1
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 23.4 133.6
Available for sale:
Maturities and early calls . . . . . . . . . . . . . . . . . . . 72.5 31.9 24.4
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139.0 86.3 151.0
Sales of equity securities . . . . . . . . . . . . . . . . . . . . 201.9 30.2 69.3
Sales of other investments . . . . . . . . . . . . . . . . . . . . 4.1 4.7 6.3
Sales of fixed assets for company use. . . . . . . . . . . . . . . 6.8 3.7 2.0
Purchases of fixed maturity securities:
Held to maturity . . . . . . . . . . . . . . . . . . . . . . . . (236.9) (411.2) (828.3)
Available for sale . . . . . . . . . . . . . . . . . . . . . . . (515.8) (152.3) (140.1)
Purchases of equity securities . . . . . . . . . . . . . . . . . . (42.6) (100.8) (133.7)
Purchases of other investments . . . . . . . . . . . . . . . . . . (3.8) (12.2) (6.0)
Purchases of fixed assets for company use. . . . . . . . . . . . . (7.1) (11.4) (12.1)
Other-net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.6 1.2 (1.7)
---------- ---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (254.3) (347.0) (369.1)
----------- ----------- ----------
Cash flows from financing activities:
Increase in term loans . . . . . . . . . . . . . . . . . . . . . . 12.7 34.0 17.4
Issuance of preferred and common stock . . . . . . . . . . . . . . 14.5 1.6 4.7
Issuance of treasury stock . . . . . . . . . . . . . . . . . . . . 2.3 - -
Repayments of term loans . . . . . . . . . . . . . . . . . . . . . (4.9) (.5) (6.9)
Dividends on common shares . . . . . . . . . . . . . . . . . . . . (26.7) (24.5) (21.6)
Dividends on preferred shares. . . . . . . . . . . . . . . . . . . (7.9) (8.2) (8.3)
Purchases of treasury stock . . . . . . . . . . . . . . . . . . . (.9) (8.5) -
Purchases of cumulative preferred stock. . . . . . . . . . . . . . - (2.6) -
Redemption of cumulative preferred stock . . . . . . . . . . . . . - - -
Other-net . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1.4) .4 7.5
---------- ---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12.3) (8.4) (7.3)
========== ========== ==========
Increase (decrease) in cash and short-term
investments . . . . . . . . . . . . . . . . . . . . . . . . . . . 128.8 (95.0) 17.5
Cash and short-term investments, beginning of year. . . . . . . . 203.3 298.3 280.7
---------- ---------- ----------
Cash and short-term investments, end of year . . . . . . . . . . $ 332.1 $ 203.3 $ 298.3
========== ========== ==========
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
Old Republic International Corporation and Subsidiaries
Notes to Consolidated Financial Statements
($ in Millions, Except as Otherwise Indicated)
- -------------------------------------------------------------------------------
Old Republic International Corporation is a Chicago-based insurance holding
company with subsidiaries engaged in the general (property & liability),
mortgage guaranty, title, 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,
Mortgage Guaranty, Title, and Life Groups, and references herein to such groups
apply to the Company's subsidiaries engaged in the respective segments of
business. See Note 7 for a discussion of the Company's business segments.
Note 1-Summary of Significant Accounting Policies-The significant accounting
policies employed by Old Republic International Corporation and its subsidiaries
are set forth in the following summary.
(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 sub-
sidiaries are insignificant and are reflected on the equity basis of accounting.
All significant intercompany accounts and transactions have been eliminated in
consolidation.
(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. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
(c) Investments-The Company may classify 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,
net of deferred income taxes) or (3) has the intention of trading (carried at
fair value with adjustments to income); as of December 31, 1995, the Company's
invested assets were classified solely as "held to maturity" or "available for
sale."
In November 1995, the Company reevaluated the classification of invested
assets, as permitted by a Special Report issued by the Financial Accounting
Standards Board (FASB) in November 1995. As a result, the Company reclassified
from "held to maturity" to "available for sale", certain fixed maturity
securities with an amortized cost of $1,365.7, fair value of $1,394.2 and an
unrealized gain of $28.4. The unrealized gain, net of deferred income taxes of
$9.9, has been credited directly to a separate account in the common
shareholders' equity section of the balance sheet in the final quarter of 1995.
Fixed maturity securities and redeemable preferred stocks classified as
"held to maturity" are generally carried at amortized costs while fixed maturity
securities 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. The aggregate fair
value of fixed maturity securities - "held to maturity" at December 31, 1995 was
above their carrying values.
<PAGE>
The amortized cost and estimated fair values of fixed maturity securities are as
follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Fixed Maturity Securities:
December 31, 1995:
Held to maturity:
Utilities. . . . . . . . . . . . . . . $ 995.4 $ 30.7 $ 2.5 $ 1,023.7
Tax-exempt . . . . . . . . . . . . . . 717.8 18.1 1.6 734.4
Redeemable preferred stocks . . . . . .7 - - .7
---------- ---------- ---------- ----------
$ 1,714.1 $ 48.9 $ 4.1 $ 1,759.0
========== ========== ========== ==========
Available for sale:
U.S. & Canadian Governments . . . . . $ 776.7 $ 36.0 $ .4 $ 812.4
Corporate . . . . . . . . . . . . . . 1,292.1 44.7 3.3 1,333.6
---------- ---------- ---------- ----------
$ 2,068.9 $ 80.8 $ 3.7 $ 2,146.0
========== ========== ========== ==========
December 31, 1994:
Held to maturity:
Corporate . . . . . . . . . . . . . . . $ 1,350.5 $ 1.2 $ 68.5 $ 1,283.3
Utilities . . . . . . . . . . . . . . . 925.0 .8 57.8 868.0
Tax-exempt. . . . . . . . . . . . . . . 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:
U.S. & Canadian Governments . . . . . . $ 646.8 $ 1.6 $ 28.1 $ 620.3
========== ========== ========== ==========
</TABLE>
<PAGE>
The amortized cost and estimated fair value at December 31, 1995, 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.
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
--------- ---------
<S> <C> <C>
Fixed Maturity Securities:
Held to Maturity:
Due in one year or less . . . . . . . . . . . . . . . . . $ 77.6 $ 78.2
Due after one year through five years . . . . . . . . . . 712.4 725.3
Due after five years through ten years. . . . . . . . . . 903.6 933.4
Due after ten years . . . . . . . . . . . . . . . . . . . 20.4 21.9
--------- ---------
$ 1,714.1 $ 1,759.0
========= =========
Available for Sale:
Due in one year or less . . . . . . . . . . . . . . . . . $ 212.2 $ 214.7
Due after one year through five years . . . . . . . . . . 919.7 942.7
Due after five years through ten years. . . . . . . . . . 893.0 937.1
Due after ten years . . . . . . . . . . . . . . . . . . . 44.0 51.3
--------- ---------
$ 2,068.9 $ 2,146.0
========= =========
</TABLE>
A summary of the Company's equity securities follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gains Losses Value
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Equity Securities:
December 31, 1995:
Common stocks . . . . . . . . . . . . . $ 91.3 $ 33.6 $ 3.2 $ 121.7
Non redeemable preferred stocks . . . . 4.4 - - 4.4
-------- -------- -------- --------
$ 95.7 $ 33.6 $ 3.2 $ 126.1
======== ======== ======== ========
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
======== ======== ======== ========
</TABLE>
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 equity
securities 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 equity securities; 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, 1995, the Corporation and its subsidiaries had non-income
producing investments aggregating $0.1.
<PAGE>
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:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Investment income from:
Fixed maturity securities . . . . . . . . . . . $ 230.4 $ 208.2 $ 205.2
Equity securities . . . . . . . . . . . . . . . 6.3 7.5 5.0
Short-term investments. . . . . . . . . . . . . 13.6 9.7 8.7
Other sources . . . . . . . . . . . . . . . . . 8.4 7.9 7.0
---------- ---------- ----------
Gross investment income . . . . . . . . . . . . 258.7 233.6 226.0
Investment expenses (1) . . . . . . . . . . . . 6.8 6.0 5.2
---------- ---------- ----------
Net investment income . . . . . . . . . . . . . $ 251.9 $ 227.5 $ 220.7
========== ========== ==========
Realized gains (losses) on:
Fixed maturity securities:
Held to maturity . . . . . . . . . . . . . . . $ .1 $ 1.1 $ 11.3
---------- ---------- ----------
Available for sale:
Gains . . . . . . . . . . . . . . . . . . . . 4.9 2.0 19.5
Losses . . . . . . . . . . . . . . . . . . . (1.7) (.3) (4.1)
---------- ---------- ----------
Net . . . . . . . . . . . . . . . . . . . . 3.2 1.7 15.4
---------- ---------- ----------
Total . . . . . . . . . . . . . . . . . . . . 3.3 2.8 26.7
---------- ---------- ----------
Equity securities . . . . . . . . . . . . . . 47.2 5.3 13.6
Other assets . . . . . . . . . . . . . . . . . (.8) (.5) (.1)
---------- ---------- ----------
Total . . . . . . . . . . . . . . . . . . . . 49.7 7.7 40.2
Income taxes . . . . . . . . . . . . . . . . . 17.5 2.7 14.4
---------- ---------- ----------
Net realized gains . . . . . . . . . . . . . $ 32.2 $ 5.0 $ 25.7
========== ========== ==========
Unrealized investment gains (losses) on:
Fixed maturity securities:
Held to maturity (2) . . . . . . . . . . . . . $ 189.0 $ (234.0) $ 37.8
========== ========== ==========
Available for sale . . . . . . . . . . . . . . $ 101.9 $ (50.8) $ 25.2
Less: Deferred income taxes. . . . . . . . . . 35.3 (17.4) 8.7
---------- ---------- ----------
Net unrealized gains (losses) . . . . . . . . . $ 66.5 $ (33.3) $ 16.4
========== ========== ==========
Equity securities-available for sale. . . . . . $ 21.6 $ (3.2) $ (.7)
Less: Deferred income taxes (credits) . . . . . 7.4 (.8) (.6)
---------- ---------- ----------
Net unrealized gains (losses) . . . . . . . . . $ 14.2 $ (2.3) $ (.1)
========== ========== ==========
___________
(1) Investment expenses consist of personnel costs and investment custody service fees.
(2) Deferred income taxes do not apply since these securities are carried at amortized cost.
</TABLE>
(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 completion of the policy issuance process. Title abstract,
escrow, service, and other fees are taken into income at the time of closing of
the related escrow. First year and renewal mortgage guaranty premiums are
recognized as income on a straight-line basis except that a portion of first
year
<PAGE>
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 disabili-
ty/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:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Deferred, beginning of year . . . . . . . . . . . . $ 101.3 $ 95.5 $ 78.9
---------- ---------- ---------
Acquisition costs deferred:
Commissions - net of reinsurance . . . . . . . . . 96.8 110.5 117.1
Premium taxes . . . . . . . . . . . . . . . . . . 33.8 33.8 22.2
Salaries and other marketing expenses. . . . . . . 52.4 52.2 46.9
---------- ---------- ----------
Sub-total . . . . . . . . . . . . . . . . . . . 183.1 196.8 186.2
Amortization charged to income . . . . . . . . . . (176.6) (191.0) (169.6)
---------- ---------- ----------
Change for the year . . . . . . . . . . . . . . 6.5 5.6 16.6
---------- ---------- ----------
Deferred, end of year . . . . . . . . . . . . . . . $ 107.8 $ 101.3 $ 95.5
========== ========== ==========
</TABLE>
(f) Future Policy Benefits/Unearned Premiums-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, 1995 and 1994, the Life Insurance Group had $4,237.0 and
$4,423.4, respectively, of net life insurance in force. Future policy
liabilities and unearned premiums, consisted of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------
1995 1994
---------- ----------
<S> <C> <C>
General Insurance Group . . . . . . . . . . . $ 333.0 $ 323.8
Mortgage Guaranty Group . . . . . . . . . . . 73.6 81.6
Life Insurance Group:
Life insurance . . . . . . . . . . . . . . 62.1 58.0
Annuities . . . . . . . . . . . . . . . . . 83.1 91.3
Disability/accident & health. . . . . . . . 40.7 35.6
---------- ----------
Sub-total . . . . . . . . . . . . . . . . . 186.0 184.9
---------- ----------
Consolidated . . . . . . . . . . . . . . . . $ 592.7 $ 590.4
========== ==========
</TABLE>
<PAGE>
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:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1995 1994
---------- ----------
<S> <C> <C>
Net Insurance in Force:
Bonds. . . . . . . . . . . . . . . . . . . . . $ 2,352.2 $ 2,342.8
Variable interest rate . . . . . . . . . . . . .8 1.0
Residual value . . . . . . . . . . . . . . . . .8 .8
Net Unearned Premiums:
Bonds . . . . . . . . . . . . . . . . . . . . 14.5 14.8
Variable interest rate . . . . . . . . . . . . .8 1.0
Residual value . . . . . . . . . . . . . . . . $ - $ -
========== ==========
</TABLE>
With respect to mortgage guaranty insurance (net insurance in force of
$38,862.7 and $30,405.3, at December 31, 1995 and 1994, respectively) the
Company's reserving policies are set forth below in Note 1(g).
(g) Losses, Claims and Settlement Expenses-Reserves are estimates that provide
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' compen-
sation reserves, however, are discounted to present value based on interest
rates ranging from 3.5% to 4%.
The establishment of claim reserves 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, and to the evolution, interpretation, and expansion
of tort law, as well as to the effects of unexpected jury verdicts.
<PAGE>
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 an analysis of changes in aggregate reserves for
the Company's losses, claims and settlement expenses for each of the years
shown.
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Amount of reserves for unpaid claims and claim adjustment
expenses at the beginning of each year, net of reinsurance
losses recoverable. . . . . . . . . . . . . . . . . . . . . . . . $ 2,096.5 $ 1,989.8 $ 1,836.4
---------- ---------- ----------
Incurred claims and claim adjustment expenses:
Provisions for insured events of the current year . . . . . . . . 864.6 857.3 871.9
Change in provision for insured events of prior years . . . . . . (118.9) (100.4) (54.5)
---------- ---------- ----------
Total incurred claims and claim adjustment expenses . . . . . 745.6 756.8 817.4
---------- ---------- ----------
Payments:
Claims and claim adjustment expenses attributable to insured
events of the current year . . . . . . . . . . . . . . . . . . . 251.7 279.9 295.4
Claims and claim adjustment expenses attributable to insured
events of prior years . . . . . . . . . . . . . . . . . . . . . . 390.5 370.1 368.6
---------- ---------- ----------
Total payments . . . . . . . . . . . . . . . . . . . . . . . 642.3 650.1 663.9
----------- ---------- ----------
Amount of reserves for unpaid claims and claim adjustment
expenses at the end of each year, net of reinsurance
losses recoverable . . . . . . . . . . . . . . . . . . . . . . . 2,200.2 2,096.5 1,989.8
Reinsurance losses recoverable . . . . . . . . . . . . . . . . . . 1,319.6 1,418.1 1,415.7
---------- ---------- ----------
Amount of reserves for unpaid claims and claim adjustment
expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,519.8 $ 3,514.7 $ 3,405.6
========== ========== ==========
</TABLE>
All reserves are necessarily based on estimates which are periodically
reviewed and evaluated in the light of emerging claim experience and changing
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 or deficiencies for certain coverages such as workers compensation.
The data in the table above, incorporates the Corporation's estimates for
various asbestosis and environmental impairment ("A&E") claims or related costs
that have been filed in the normal course of business against a number of its
insurance subsidiaries. Many such claims relate to policies issued prior to
1985, and 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 A&E 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, 1995, the Corporation's
aggregate indemnity and loss adjustment expense reserves specifically identified
with these A&E exposures amounted to approximately $87.4 million gross, and
$60.1 million net of reinsurance. Based on average annual claims payments
during the five most recent calendar years, such reserves represented 10.7 years
(gross) and 12.7 years (net) of average annual claims payments.
Old Republic disagrees with the allegations of liability on virtually all A&E
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.
Individual insurance companies and others who have evaluated the potential
costs of litigating and settling A&E claims have noted with increasing concern
the possibility that resolution of such claims, by applying liability
retroactively in the context of the existing insurance system, could 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 claims in particular. In recent times, the Executive Branch
and/or the United States Congress have proposed changes in the legislation and
rules affecting environmental claims. As of December 31, 1995, however, there
is no solid evidence to suggest that forthcoming changes might mitigate or
reduce some or all of these claim exposures.
Because of the above 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.
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:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Statutory tax rate . . . . . . . . . . . . . . . . . . . . 35.0% 35.0% 35.0%
Tax rate increases (decreases):
Tax-exempt interest . . . . . . . . . . . . . . . . . . . . (2.5) (2.4) (1.4)
Dividends received exclusion. . . . . . . . . . . . . . . . (.4) (.9) (.7)
Change in tax rate on beginning temporary differences . . . - - (1.2)
Other items - net . . . . . . . . . . . . . . . . . . . . . .6 .8 .4
-------- -------- --------
Effective tax rate . . . . . . . . . . . . . . . . . . . . 32.7% 32.5% 32.0%
======== ======== ========
</TABLE>
<PAGE>
The tax effects of temporary differences that give rise to significant
portions of the Company's net deferred tax recoverable (payable) are as follows
at the dates shown:
<TABLE>
<CAPTION>
December 31,
----------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Deferred Tax Assets:
Future policy benefits. . . . . . . . . . . . . . . . . . . . $ 2.2 $ 3.1 $ 1.7
Losses, claims, and settlement expenses . . . . . . . . . . . 179.8 179.8 182.2
Unearned premium reserves . . . . . . . . . . . . . . . . . . (3.0) 1.0 6.2
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.8 8.7 8.7
-------- -------- --------
Total gross deferred tax assets . . . . . . . . . . . . . . . 187.9 192.7 199.0
Less-valuation allowance. . . . . . . . . . . . . . . . . . . 2.5 1.4 3.9
-------- -------- --------
Net deferred tax assets . . . . . . . . . . . . . . . . . . . 185.4 191.3 195.0
-------- -------- --------
Deferred Tax Liabilities:
Deferred policy acquisition costs . . . . . . . . . . . . . . 36.7 35.5 34.2
Mortgage guaranty insurers' contingency reserves. . . . . . . 97.2 67.2 43.2
Fixed maturity securities adjusted to cost. . . . . . . . . . 4.4 3.6 4.8
Unrealized investment gains (losses) . . . . . . . . . . . . 37.1 (5.5) 10.2
Title plants and records . . . . . . . . . . . . . . . . . . 3.5 3.4 3.4
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.5 14.5 15.7
-------- -------- --------
Total deferred tax liabilities . . . . . . . . . . . . . . . $ 195.6 $ 118.8 $ 111.9
-------- -------- --------
Net deferred tax asset (liability). . . . . . . . . . . . . . $ (10.2) $ 72.4 $ 83.2
======== ======== ========
</TABLE>
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 $20.4 at December 31, 1995) 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 1993. 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
1995 and 1994, certain of the proposed adjustments were finally settled for
immaterial amounts.
(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.
<PAGE>
(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 $3.2 in 1995, $3.1 in 1994 and $3.2 in
1993.
(l) Employee Benefit Plans- The Corporation has several pension plans covering a
portion of its work force. 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:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Service cost. . . . . . . . . . . . . . . . . . . . $ 3.2 $ 3.4 $ 3.0
Interest cost . . . . . . . . . . . . . . . . . . . 7.6 7.1 6.7
Return on assets. . . . . . . . . . . . . . . . . . (15.5) (5.2) (8.0)
Net amortization and deferral . . . . . . . . . . . 5.6 (4.9) (1.7)
-------- -------- --------
Net cost (credit) . . . . . . . . . . . . . . . . . $ 1.0 $ .3 $ -
======== ======== ========
</TABLE>
The reconciliation of the funded status of the plans is as follows:
<TABLE>
<CAPTION>
December 31,
-------------------
1995 1994
-------- --------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligations . . . . . . . . . . . . . . . . . $ 87.7 $ 83.4
Nonvested benefit obligations . . . . . . . . . . . . . . . . 2.4 2.1
-------- --------
Accumulated benefit obligations. . . . . . . . . . . . . . . . 90.2 85.5
Excess of projected benefit obligations over
accumulated benefit obligations . . . . . . . . . . . . . . . 15.5 15.0
-------- --------
Projected benefit obligations . . . . . . . . . . . . . . . . 105.7 100.5
Plans' assets at fair market value . . . . . . . . . . . . . . 112.6 106.7
-------- --------
Plan assets in excess of projected benefit obligations . . . . 6.9 6.2
Unrecognized net loss . . . . . . . . . . . . . . . . . . . . 3.3 5.5
Prior service cost not yet recognized in net periodic pension cost .5 .6
Remaining unrecognized transition net assets from
December 31, 1985 . . . . . . . . . . . . . . . . . . . . . . (4.2) (5.8)
-------- --------
Unfunded accrued pension asset recognized in the consolidated
balance sheet . . . . . . . . . . . . . . . . . . . . . . . . $ 6.5 $ 6.5
======== ========
</TABLE>
The projected benefit obligations for the plans were determined using the
following assumptions at the dates shown:
<TABLE>
<CAPTION>
December 31,
-----------------------
1995 1994
---------- ----------
<S> <C> <C>
Settlement discount rates. . . . . . . . . . . . . . . . . . . 7.4 - 8.0% 7.0 - 8.5%
Rates of compensation increase . . . . . . . . . . . . . . . . 4.0 - 6.0% 4.0 - 5.5%
Long-term rates of return on assets. . . . . . . . . . . . . . 8.0 - 8.5% 7.5 - 8.5%
</TABLE>
<PAGE>
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:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Employees Savings and Stock Ownership Plan. . . . . $ 1.2 $ 5.2 $ 1.8
Other profit sharing . . . . . . . . . . . . . . . 3.4 3.2 3.0
Deferred and incentive compensation . . . . . . . . $ 5.2 $ 8.2 $ 12.9
======== ======== ========
</TABLE>
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) in which a majority of its employees participate. 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
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 growth in net income per share
over consecutive five year periods. As of December 31, 1995, there were
22,256,680 Series "D" Redeemable Convertible Preferred Shares and 447,248 Common
Shares owned by the ESSOP of which 4,929,467 Series "D" Redeemable Convertible
Preferred Shares and 23,050 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 ($299.5 and $198.7 at December 31, 1995 and
1994, 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, 1995. Dividend requirements of $4.9 in 1995, $5.1 in 1994 and $5.2
in 1993 on preferred stock have been considered in per share calculations.
The average number of common shares used in 1995, 1994 and 1993 earnings per
share calculations reflect the pro forma inclusion of 5,165,377, 5,323,170 and
5,476,047 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 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.
<TABLE>
<CAPTION>
Supplemental cash flow information: Years Ended December 31,
------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Cash paid during the year for:
Interest. . . . . . . . . . . . . . . . . $ 23.1 $ 19.9 $ 20.0
Income taxes. . . . . . . . . . . . . . . 47.4 61.5 54.1
-------- -------- --------
$ 70.5 $ 81.4 $ 74.1
======== ======== ========
</TABLE>
<PAGE>
(p) Concentration of Credit Risk-Excluding U.S. government fixed maturity
securities, 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 $163.1 as of December
31, 1995 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:
<TABLE>
<CAPTION>
December 31,
----------------------------------------
1995 1994
------------------ ------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Commercial paper due within 180 days with an
average yield of 5.81% and 6.29%. . . . . . . . . . $ 92.1 $ 92.1 $ 83.2 $ 83.2
Convertible subordinated debentures maturing in
2002 at 5.75% (b)(c). . . . . . . . . . . . . . . . 110.0 148.5 110.0 106.7
Debentures maturing in 2015 at 11.5% . . . . . . . . 29.6 31.8 29.5 32.0
Debentures maturing in 2018 at 10.0%(c). . . . . . . 74.0 79.5 74.0 78.9
Other miscellaneous debt . . . . . . . . . . . . . . 2.9 2.9 4.0 4.0
-------- -------- -------- --------
Total debt . . . . . . . . . . . . . . . . . . . . . 308.8 354.8 300.9 304.9
Redeemable convertible preferred stock classified
as a debt equivalent (See (a) below). . . . . . . . 11.7 11.7 13.8 13.8
-------- -------- -------- --------
Total debt and debt equivalents. . . . . . . . . . . $ 320.5 $ 366.5 $ 314.7 $ 318.7
======== ======== ======== ========
</TABLE>
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, 1995 are as
follows: 1996: $97.5; 1997: $4.3; 1998: $2.5; 1999: $6.9; 2000: $6.8; 2001 and
after $202.3. During 1995, 1994 and 1993, $23.0, $19.8 and $20.0, respectively,
of interest expense on debt was charged to consolidated operations.
__________
(a) The Company has guaranteed bank loans (balance at December 31, 1995 was
$11.7) 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 Convertible Preferred Stock from the
Company by the trust for the original amount of the loans. The Trust's loan
principal repayments (currently scheduled at $2.8 in 1996, $2.7 in 1997,
$1.0 in 1998, $2.6 in 1999 and $2.5 in 2000) 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 $11.7 is payable quarterly and at
rates ranging from 75% to 84% of the prime rate. 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. See note (c) below.
(c) In February 1996, the Company called for the redemption of its 10%
debentures maturing in 2018 and its 5.75% convertible subordinated
debentures of 2002; redemption of the former will be effected with available
funds, while the latter are expected to be converted into approximately 4.3
million Old Republic common shares.
<PAGE>
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, 1995.
(a) Preferred Stock-The following table shows certain information pertaining to
each of the Corporation's series of preferred shares issued and outstanding:
<TABLE>
<CAPTION>
Redeemable convertible Convertible Cumulative
----------------------- ----------------------- ----------
Preferred Stock Series: "B" "D"(3) "E" "G"(1) "H"
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
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. . . . . . . . . . . $ - $ 1.30 $ - (1) $25.00
Redemption beginning in year . . . . . 1994 1987 1995 (1) (4)
Total redemption value (millions). . . $ - $ 29.73 $ - (1) 54.80
Vote per share . . . . . . . . . . . . one one one one -
Shares outstanding:
December 31, 1994. . . . . . . . . . . 386,075 22,874,402 107,278 72,852 2,192,100
December 31, 1995. . . . . . . . . . . - 22,874,402 - 86,210 2,192,100
========== ========== ========== =========== ==========
__________
(1) The Corporation has authorized up to 1,000,000 shares of Series G Convertible
Preferred Stock ("Series G") 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"). Each share
of Series G pays a floating rate dividend based on the prime rate of interest.
At December 31, 1995, the annual dividend rate for Series G and Series G-2 was
$.71 per share and $1.96 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)). Unless previously converted, 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. 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 unless previously
converted.
(3) Series "D" redeemable convertible preferred stock, substantially all of which
is held by the Corporation's employee benefit plans, is 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.
(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.
</TABLE>
(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 1995 data, the maximum amount of
dividends payable to the Corporation by its insurance and a small number of non-
insurance company subsidiaries during 1996 without the prior approval of
appropriate regulatory authorities is approximately $209.5. 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 otherwise
be obtained from the exercise of options into common shares.
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)).
<TABLE>
<CAPTION>
As of and for the Years Ended December 31,
--------------------------------------------------------------------------
1992 Plan 1985 Plan 1979 Plan
--------------------------- ------------------------- -----------------
1995 1994 1993 1995 1994 1993 1994 1993
--------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Options outstanding . . . . . . . . . . . . . . . 1,213,460 626,925 633,575 591,145 718,710 774,506 - 16,610
Price range:
High. . . . . . . . . . . . . . . . . . . . . . $ 26.63 $ 26.13 $ 26.13 $ 12.62 $ 12.62 $ 12.62 $ - $ 5.14
Low . . . . . . . . . . . . . . . . . . . . . . $ 20.50 $ 20.50 $ 20.50 $ 8.74 $ 8.74 $ 8.74 $ - $ 5.14
Shares exercisable. . . . . . . . . . . . . . . . 243,662 127,805 65,858 502,696 628,433 651,644 - 16,610
Options granted . . . . . . . . . . . . . . . . . 624,000 - 610,775 - - - - -
Price of options granted:
High. . . . . . . . . . . . . . . . . . . . . . $ 26.63 $ - $ 26.13 $ - $ - $ - $ - $ -
Low . . . . . . . . . . . . . . . . . . . . . . $ 24.38 $ - $ 25.13 $ - $ - $ - $ - $ -
Vesting acceleration price:
High . . . . . . . . . . . . . . . . . . . . . $ 39.94 $ 39.19 $ 39.19 $ 18.93 $ 18.93 $ 18.93 $ N/A $ N/A
Low . . . . . . . . . . . . . . . . . . . . . . $ 30.75 $ 30.75 $ 30.75 $ 13.11 $ 13.11 $ 13.11 $ N/A $ N/A
Options cancelled or forfeited . . . . . . . . . 21,010 6,650 2,000 - 5,687 526 - 184
Options exercised . . . . . . . . . . . . . . . . 16,455 - 200 127,565 50,109 76,113 16,610 200,555
Average price of options
exercised . . . . . . . . . . . . . . . . . . . . $ 25.04 $ - $ 25.13 $ 11.44 $ 11.11 $ 11.42 $ 5.14 $ 7.13
========= ======= ======= ======= ======= ======= ====== =======
</TABLE>
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, 1995,
there were no more options outstanding and exercisable. Options for 5,576;
18,246; and 24,568 were exercised for a total consideration of approximately
$0.1, $0.1 and $0.1 during 1995, 1994 and 1993, respectively.
In October 1995, the Financial Accounting Standards Boards issued FAS No. 123
"Accounting for Stock Based Compensation". This statement provides two
alternatives for accounting for stock based compensation (stock option grants).
The Company has elected the alternative to continue to report in accordance with
Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to
Employees" and will provide the disclosures as required by FAS No. 123.
<PAGE>
(e) Common Stock-There were 250,000,000 shares of common stock authorized at
December 31, 1995. 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.
During 1995, the Corporation issued a total of 661,042 common shares valued
at $13.7 to effect two small acquisitions which were not material to Old
Republic's financial position or operating results.
(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, 1995 amounted to $1,151.9 and $70.1,
respectively. Cash dividends declared during 1995, 1994 and 1993, to the
Corporation by its subsidiaries amounted to $106.8, $55.4 and $53.9,
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:
<TABLE>
<CAPTION>
Shareholders' Equity Net Income
-------------------- ------------------------------
December 31, Years Ended December 31,
-------------------- ------------------------------
1995 1994 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
General Insurance Group. . . . . . $1,129.1 $1,016.2 $ 149.6 $ 116.2 $ 93.2
Mortgage Guaranty Group. . . . . . 133.8 107.6 95.9 74.7 56.3
Title Insurance Group. . . . . . . 125.6 123.5 15.2 6.0 19.2
Life Insurance Group . . . . . . . $ 81.2 $ 82.5 $ 6.9 $ 6.9 $ 3.6
======== ======== ======== ======== ========
</TABLE>
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 is secured by
letters of credit, cash, and/or securities.
Reinsurance protection for General Insurance operations generally limits the
net loss on any one risk to the following maximums (in thousands):fire and other
physical perils-$300; accident and health-$15; workers' compensation-$1,000;
other liability-$750; and loan credit guaranty-$200. A substantial portion of
the mortgage guaranty insurance business is retained, with the exposure on any
one risk currently averaging less than $22. Title insurance risk assumptions,
based on the title insurance subsidiary's financial resources, are currently
limited to $25,000 as to any one policy. 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.
<PAGE>
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, 1995. For the years 1993 to 1995, reinsurance
transactions of the Title Insurance Group have not been material.
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
General Insurance Group
Written premiums:direct. . . . . . . . . . . . . . . . . . $ 1,118.0 $ 1,170.2 $ 1,160.7
assumed . . . . . . . . . . . . . . . . . 65.2 68.6 111.5
ceded . . . . . . . . . . . . . . . . . . $ 307.0 $ 387.3 $ 396.1
========== ========== ==========
Earned premiums:direct . . . . . . . . . . . . . . . . . . $ 1,099.7 $ 1,174.6 $ 1,170.4
assumed. . . . . . . . . . . . . . . . . . 74.3 78.1 107.6
ceded. . . . . . . . . . . . . . . . . . . $ 322.8 $ 388.6 $ 411.4
========== ========== ==========
Claims ceded . . . . . . . . . . . . . . . . . . . . . . . $ 210.0 $ 277.2 $ 390.9
========== ========== ==========
Mortgage Guaranty Group
Written premiums:direct. . . . . . . . . . . . . . . . . . $ 170.3 $ 138.4 $ 125.7
assumed . . . . . . . . . . . . . . . . . - - -
ceded . . . . . . . . . . . . . . . . . . $ 2.2 $ 3.2 $ 4.6
========== ========== ==========
Earned premiums:direct . . . . . . . . . . . . . . . . . . $ 178.2 $ 138.3 $ 102.5
assumed. . . . . . . . . . . . . . . . . . - - -
ceded. . . . . . . . . . . . . . . . . . . $ 3.0 $ 3.8 $ 5.7
========== ========== ==========
Claims ceded . . . . . . . . . . . . . . . . . . . . . . . $ 1.8 $ 2.3 $ 3.3
========== ========== ==========
Mortgage guaranty insurance in force as of
December 31:direct . . . . . . . . . . . . . . . . . . . . $ 39,201.2 $ 31,415.8 $ 25,372.5
assumed. . . . . . . . . . . . . . . . . . . . - .1 .4
ceded. . . . . . . . . . . . . . . . . . . . . $ 338.5 $ 1,010.5 $ 1,346.8
========== ========== ==========
Life Insurance Group
Written premiums:direct. . . . . . . . . . . . . . . . . . $ 88.0 $ 80.4 $ 64.5
assumed . . . . . . . . . . . . . . . . . .3 .3 .3
ceded . . . . . . . . . . . . . . . . . . $ 42.4 $ 43.3 $ 33.7
========== ========== ==========
Earned premiums:direct . . . . . . . . . . . . . . . . . . $ 82.5 $ 80.6 $ 71.0
assumed. . . . . . . . . . . . . . . . . . .3 .3 .3
ceded. . . . . . . . . . . . . . . . . . . $ 40.9 $ 41.0 $ 38.3
========== ========== ==========
Life insurance in force as of December 31:direct . . . . . $ 7,747.3 $ 8,742.4 $ 8,848.7
assumed. . . . . - - -
ceded . . . . . $ 3,510.2 $ 4,318.9 $ 4,561.9
========== ========== ==========
Disability/accident and health insurance premiums
ceded on a quota share basis:
To affiliated companies . . . . . . . . . . . . . . . . $ 3.4 $ 3.0 $ 1.1
To unaffiliated companies. . . . . . . . . . . . . . . . 24.7 24.5 18.1
---------- ---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . $ 28.1 $ 27.6 $ 19.3
========== ========== ==========
Percentage of direct and assumed premiums . . . . . . . 43.8% 49.9% 53.7%
========== ========== ==========
</TABLE>
(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, 1995, aggregate
minimum rental commitments (net of expected sub-lease receipts) under
noncancellable operating leases of $106.5 are summarized as follows: 1996:$26.8;
1997: $20.6; 1998: $14.5; 1999: $9.1; 2000: $5.7; 2001 and after: $29.5.
<PAGE>
(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, 1995 is presented
below. In the fourth quarter of 1995, the Company's Mortgage Guaranty Group
adopted the accrual method for recording past-due premium revenues and the
related premium receivable arising from new monthly premium policies. This new
payment mode has emerged as a significant factor for the mortgage guaranty
industry since mid-1994. Before adoption of this accrual method, past-due
premiums were recognized on receipt of cash. With the adoption this accrual
method, a cumulative increase in net premiums written of $9.8 million, net
premiums earned of $6.3 million, and post-tax income of $3.9 million or six
cents per fully diluted share was reflected in the Company's final quarter and
year of 1995.
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":
<TABLE>
<CAPTION>
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Year Ended December 31, 1995:
Operating Summary:
Net premiums, fees, and other income. . . . . $ 320.9 $ 352.3 $ 350.7 $ 369.9
Net investment income and realized gains. . . 64.8 64.3 82.6 89.6
Total revenues . . . . . . . . . . . . . . . 385.8 416.9 433.5 459.6
Benefits, claims, and expenses. . . . . . . . 329.0 354.2 342.2 354.3
Net income. . . . . . . . . . . . . . . . . . $ 39.0 $ 42.0 $ 60.9 $ 70.6
========== ========== ========== ==========
Net income per share:Primary. . . . . . . . . $ .66 $ .72 $ 1.05 $ 1.20
Fully Diluted. . . . . . $ .63 $ .68 $ .99 $ 1.13
========== ========== ========== ==========
Average common and equivalent shares outstanding:
Primary . . . . . . . . . . . . . . . . . . 56,938,962 57,021,249 57,122,458 57,870,868
========== ========== ========== ==========
Fully Diluted . . . . . . . . . . . . . . . 61,397,387 61,524,206 61,676,312 62,486,240
========== ========== ========== ==========
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
========== ========== ========== ==========
<PAGE>
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, Mortgage Guaranty, Title and Life Groups
with total consolidated assets at December 31, 1995 and 1994, adjustments must
be made for the parent company assets of $2,056.3 and $1,745.2, and
consolidating eliminations of $2,417.5 and $2,143.0, respectively.
Revenues and assets connected with foreign operations are not significant
in relation to consolidated totals.
</TABLE>
<TABLE>
<CAPTION>
Net Revenues
- ---------------------------------------------------------------------------------
Years Ended December 31,
-----------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
General Insurance Group:
Net premiums earned:
Liability coverages. . . . . . . . . . . . $ 477.9 $ 509.8 $ 517.5
Property and other coverages . . . . . . . 373.2 354.2 349.0
Net investment (a) and other income. . . . 204.9 187.4 192.0
---------- ---------- ----------
Total . . . . . . . . . . . . . . . . . . 1,056.1 1,051.4 1,058.5
---------- ---------- ----------
Mortgage Guaranty Group:
Net premiums earned. . . . . . . . . . . . 175.2 134.5 96.8
Net investment (a) and other income. . . . 28.6 23.8 21.8
---------- ---------- ----------
Total. . . . . . . . . . . . . . . . . . 203.9 158.3 118.6
---------- ---------- ----------
Title Insurance Group:
Net premiums earned . . . . . . . . . . . 183.3 244.4 249.6
Title, escrow and other fees. . . . . . . 122.2 140.2 199.7
---------- ---------- ----------
Sub-total . . . . . . . . . . . . . . . 305.5 384.7 449.4
Net investment (a) and other income . . . 20.6 20.0 18.5
---------- ---------- ----------
Total . . . . . . . . . . . . . . . . . . 326.2 404.7 467.9
========== ========== ==========
Life Insurance Group:
Annuities:
Net premiums earned . . . . . . . . . . . - - .1
Net investment income . . . . . . . . . . 6.1 6.4 6.5
---------- ---------- ----------
Sub-total . . . . . . . . . . . . . . . 6.1 6.4 6.6
---------- ---------- ----------
Credit and other life and disability:
Net premiums earned. . . . . . . . . . . . 41.9 40.0 32.9
Net investment (a) and other income. . . . 9.9 9.2 9.9
---------- ---------- ----------
Sub-total . . . . . . . . . . . . . . . . 51.8 49.3 42.9
---------- ---------- ----------
Total . . . . . . . . . . . . . . . . . 58.0 55.7 49.5
---------- ---------- ----------
Other Operations - Net (b):. . . . . . . . 1.8 .9 1.3
---------- ---------- ----------
Consolidated sub-total . . . . . . . . . 1,646.1 1,671.2 1,696.0
Net Realized Gains . . . . . . . . . . . . 49.7 7.7 40.2
---------- ---------- ----------
Consolidated . . . . . . . . . . . . . . $ 1,695.9 $ 1,679.0 $ 1,736.3
========== ========== ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Income (Loss) Before Taxes (c)
- --------------------------------------------------------------------------------
Years Ended December 31,
----------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
General Insurance Group:
Underwriting/service income (loss):
Liability coverages. . . . . . . . . . . . . . $ (58.6) $ (65.0) $ (67.4)
Property and other coverages . . . . . . . . . 38.6 45.4 21.9
Net investment income (a). . . . . . . . . . . 191.1 173.8 170.1
---------- ---------- ----------
Total. . . . . . . . . . . . . . . . . . . . . 171.1 154.2 124.5
---------- ---------- ----------
Mortgage Guaranty Group:
Underwriting/service income. . . . . . . . . . 77.6 57.7 43.8
Net investment income (a). . . . . . . . . . . 25.2 20.6 17.5
---------- ---------- ----------
Total. . . . . . . . . . . . . . . . . . . . . 102.8 78.3 61.3
---------- ---------- ----------
Title Insurance Group:
Underwriting/service income (loss) . . . . . . (13.4) (16.9) 16.2
Net investment income (a). . . . . . . . . . . 18.0 16.7 15.8
---------- ---------- ----------
Total. . . . . . . . . . . . . . . . . . . . . 4.6 (.2) 32.1
---------- ---------- ----------
Life Insurance Group:
Annuities . . . . . . . . . . . . . . . . . . 2.7 2.4 (.2)
Other coverages and net investment income (a). 5.2 3.9 6.7
---------- ---------- ----------
Total. . . . . . . . . . . . . . . . . . . . . 7.9 6.4 6.5
========== ========== ==========
Other Sources - Net (b): . . . . . . . . . . . (20.2) (20.6) (21.4)
---------- ---------- ----------
Consolidated sub-total . . . . . . . . . . . . 266.2 218.1 203.0
Net Realized Gains . . . . . . . . . . . . . . 49.7 7.7 40.2
---------- ---------- ----------
Consolidated . . . . . . . . . . . . . . . . . $ 316.0 $ 225.8 $ 243.3
========== ========== ==========
__________
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).
</TABLE>
<TABLE>
<CAPTION>
Assets At Year End
- --------------------------------------------------------------------------------
December 31,
-------------------------
1995 1994
---------- ----------
<S> <C> <C>
General Insurance Group . . . . . . . . . . . . . . $ 5,356.8 $ 5,199.9
Mortgage Guaranty Group . . . . . . . . . . . . . . 634.0 487.8
Title Insurance Group . . . . . . . . . . . . . . . 415.8 402.4
Life Insurance Group. . . . . . . . . . . . . . . . 328.2 322.7
Consolidated . . . . . . . . . . . . . . . . . . . $ 6,593.5 $ 6,262.9
========== ==========
</TABLE>
Note 8-Related Party Transactions - At December 31, 1995 and 1994, 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 & Personal 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.
<PAGE>
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.
<TABLE>
<CAPTION>
Ceded to Group Assumed from Mutual Ceded to Mutual
---------------------- ---------------------- ----------------------
1995 1994 1993 1995 1994 1993 1995 1994 1993
------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Premiums written. . . . . . $ 12.6 $ 12.5 $ 11.2 $ - $ - $ - $ 3.6 $ 3.6 $ 3.6
Commissions and fees. . . . .8 .7 .6 - - - - - -
Losses and loss expenses. . 14.7 14.8 9.9 .1 (.1) (.3) 4.1 4.3 3.5
Loss and loss expense
reserves . . . . . . . . . 54.1 51.1 46.4 18.7 20.2 22.5 7.9 6.9 5.6
Unearned premiums . . . . . $ 1.1 $ .9 $ .7 $ - $ - $ - $ .3 $ .3 $ .2
====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
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, 1995 and 1994 amounted to approximately $6.0 and $6.6,respectively.
At December 31, 1995 and 1994, the Group held approximately 7.8% and 8.0%,
respectively, 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 $6.0 in 1995, $6.1 in 1994 and $5.6 in
1993. As of December 31, 1995 and 1994, total premium and loss reserve credits
taken on account of cumulative cessions aggregated $65.6 and $67.1,
respectively, all of which credits were collateralized by cash, investments and
funds held amounting to $73.2 and $69.0, respectively.
At December 31, 1995, the Corporation owned 93% 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, 7% 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:
<TABLE>
<CAPTION>
Ceded to EGI
-------------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Premiums written. . . . . . . . . . . . . . . $ 33.8 $ 29.7 $ 47.6
Losses and loss expenses. . . . . . . . . . . 26.4 22.6 30.4
Loss and loss expense reserves. . . . . . . . 42.4 33.3 22.9
Unearned premiums . . . . . . . . . . . . . . $ 12.6 $ 12.3 $ 13.1
======= ======= =======
</TABLE>
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.
<PAGE>
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, 1995 and 1994, 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, 1995. 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, 1995 and 1994, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1995 in conformity with
generally accepted accounting principles.
As discussed in footnote 1(h) and 1(l) to the consolidated financial
statements, the Company changed its method of accounting for income taxes and
post-retirement benefits other than pensions in 1993.
Coopers & Lybrand L.L.P.
Chicago, Illinois
March 13, 1996
<PAGE>
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, 1996 a definitive proxy statement pursuant to
Regulation 14A in connection with its Annual Meeting of shareholders to be held
on May 24, 1996. 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, 1996 a definitive proxy statement pursuant to
Regulation 14A in connection with its Annual Meeting of shareholders to be held
on May 24, 1996.
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, 1996 a definitive proxy statement pursuant to
Regulation 14A in connection with its Annual Meeting of shareholders to be held
on May 24, 1996.
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, 1996 a definitive proxy statement pursuant to
Regulation 14A in connection with its Annual Meeting of shareholders to be held
on May 24, 1996.
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, 1996
under cover of Form 10-K/A.
3. See exhibit index on page 52 of this report.
(b) Reports on Form 8-K:
1. No reports on Form 8-K were filed during the fourth quarter of 1995.
<PAGE>
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 _______________ _____3/14/96_____
A. C. Zucaro, Chairman of the Board, Date
Chief Executive Officer, President and Director
By : ________________/s/ Paul D. Adams_______________ _____3/14/96_____
Paul D. Adams, Senior Vice President, Date
Chief Financial Officer and Treasurer
<PAGE>
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).
__________________________________ _________________________________
Anthony F. Colao, Director* John W. Popp, Director*
Senior Vice President
__________________________________ _________________________________
John C. Collopy, Director* William A. Simpson, Director*
President of Republic Mortgage
Insurance Company
_________________________________ _________________________________
Jimmy A. Dew, Director* Arnold L. Steiner, Director*
Executive Vice President of Republic
Mortgage Insurance Company
________________________________ ________________________________
Kurt W. Kreyling, Director* William R. Stover, Director*
________________________________ ________________________________
Peter Lardner, Director* David Sursa, Director*
President of Bituminous
Casualty Corporation
________________________________ ________________________________
Wilbur S. Legg, Director William G. White, Jr., Director*
* By/S/A. C. Zucaro
Attorney-in-fact
Date: March 14, 1996
<PAGE>
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 the restated Old Republic International Corporation Employees
Savings and Stock Ownership Plan.
(B) Form 11 - K Annual Report of the Old Republic International Employees
Savings and Stock Ownership Plan for the year ended December 31, 1995
(To be filed by amendment on Form 10-K).
** (C) Copy of Old Republic International Corporation Key Employees
Performance Recognition Plan, as restated.
** (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).
<PAGE>
(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, 1995 (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, 1995 (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 State
ment No. 33-16836).
<PAGE>
(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, 1995, 1994 and 1993.
(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.
OLD REPUBLIC INTERNATIONAL CORPORATION
EMPLOYEES SAVINGS AND STOCK OWNERSHIP PLAN
(As Amended Through December 31, 1994)
<PAGE>
TABLE OF CONTENTS
SECTION I - PURPOSE. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Qualified Plan . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION II - EFFECTIVE DATE - DEFINITIONS. . . . . . . . . . . . . . . . . 2
2.1 Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.2 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.3 Gender and Number. . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION III - ELIGIBILITY. . . . . . . . . . . . . . . . . . . . . . . . . 10
3.1 General Rule . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.2 Secondary Rule . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.4 Notice of Eligibility. . . . . . . . . . . . . . . . . . . . . . 10
3.5 Consent of Participants and Beneficiary Designation. . . . . . . 10
3.6 Contributions By Ineligible Employees. . . . . . . . . . . . . . 10
SECTION IV - CONTRIBUTIONS BY PARTICIPANTS . . . . . . . . . . . . . . . . 11
4.1 Employee Contributions . . . . . . . . . . . . . . . . . . . . . 11
4.2 Change of Rate of Contributions. . . . . . . . . . . . . . . . . 11
4.3 Limitation . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION V - EMPLOYER CONTRIBUTIONS . . . . . . . . . . . . . . . . . . . . 12
5.1 1% Contribution. . . . . . . . . . . . . . . . . . . . . . . . . 12
5.2 Employer Matching Contributions. . . . . . . . . . . . . . . . . 12
5.3 Discretionary Employer Contributions . . . . . . . . . . . . . . 13
5.4 Consequences if Employer Cannot Contribute . . . . . . . . . . . 13
5.5 Cash or in Kind. . . . . . . . . . . . . . . . . . . . . . . . . 13
5.6 No Reversion . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.7 Return Upon Mistake. . . . . . . . . . . . . . . . . . . . . . . 14
5.8 ACP Discrimination Test. . . . . . . . . . . . . . . . . . . . . 14
5.9 Correction of Excess Aggregate Contributions - ACP Test. . . . . 15
SECTION VI - ADMINISTRATION COMMITTEE. . . . . . . . . . . . . . . . . . . 16
6.1 Members. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.2 Secretary. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.3 Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.4 Majority Vote. . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.5 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . 16
6.6 No Compensation. . . . . . . . . . . . . . . . . . . . . . . . . 17
6.7 Counsel and Agents . . . . . . . . . . . . . . . . . . . . . . . 17
6.8 Records. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
i
<PAGE>
6.9 Successor. . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.10 Claims Procedure . . . . . . . . . . . . . . . . . . . . . . . . 17
6.11 Information from the Employers . . . . . . . . . . . . . . . . . 17
6.12 Voting Rights. . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.13 Funding Policy . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION VII - ACCOUNTING PROVISIONS. . . . . . . . . . . . . . . . . . . . 19
7.1 Cash Basis . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.2 Taxes and Expenses . . . . . . . . . . . . . . . . . . . . . . . 19
7.3 Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.4 Accounts Maintained for Record Keeping Only. . . . . . . . . . . 20
7.5 Allocation of Income and Loss. . . . . . . . . . . . . . . . . . 20
7.6 Allocation of Special 1% Contribution. . . . . . . . . . . . . . 20
7.7 Allocation of Matching Contribution. . . . . . . . . . . . . . . 20
7.8 Allocation of Forfeitures and Discretionary Contributions. . . . 21
7.9 Committee Records. . . . . . . . . . . . . . . . . . . . . . . . 21
7.10 Participant Statements . . . . . . . . . . . . . . . . . . . . . 21
SECTION VIII - INVESTMENT OF THE TRUST FUND. . . . . . . . . . . . . . . . 22
8.1 Separate Investment Funds. . . . . . . . . . . . . . . . . . . . 22
8.2 Fund A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.3 Fund B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.4 Fund C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.5 Fund D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.6 Fund E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.7 Fund F . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.8 Fund G . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.9 Fund O . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.10 Purchase of Company Stock. . . . . . . . . . . . . . . . . . . . 23
8.11 Loans to Purchase Company Stock. . . . . . . . . . . . . . . . . 23
8.12 Separate Suspense Account. . . . . . . . . . . . . . . . . . . . 24
SECTION IX - VESTING - FORFEITURES . . . . . . . . . . . . . . . . . . . . 25
9.1 Full Vesting . . . . . . . . . . . . . . . . . . . . . . . . . . 25
9.2 Vesting on Termination of Service. . . . . . . . . . . . . . . . 25
9.3 Breaks in Service and Return to Service. . . . . . . . . . . . . 26
9.4 Source of Restoration of Forfeitures . . . . . . . . . . . . . . 27
9.5 Service of Less than 1,000 Hours . . . . . . . . . . . . . . . . 27
9.6 Vesting Schedule Amendments. . . . . . . . . . . . . . . . . . . 27
SECTION X - RETIREMENT . . . . . . . . . . . . . . . . . . . . . . . . . . 28
10.1 Normal and Late Retirement . . . . . . . . . . . . . . . . . . . 28
10.2 Disability . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
ii
<PAGE>
SECTION XI - PAYMENT OF BENEFITS . . . . . . . . . . . . . . . . . . . . . 29
11.1 Form . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
11.2 Commencement Date. . . . . . . . . . . . . . . . . . . . . . . . 29
11.3 Installment Distributions. . . . . . . . . . . . . . . . . . . . 30
11.4 Death Benefits . . . . . . . . . . . . . . . . . . . . . . . . . 31
11.5 Deductions for Taxes and Expenses. . . . . . . . . . . . . . . . 32
11.6 Payments to Minors . . . . . . . . . . . . . . . . . . . . . . . 32
11.7 Missing Distributees . . . . . . . . . . . . . . . . . . . . . . 33
11.8 Special QDRO Distribution. . . . . . . . . . . . . . . . . . . . 33
SECTION XII - INCOME OR LOSS . . . . . . . . . . . . . . . . . . . . . . . 34
12.1 Calculation. . . . . . . . . . . . . . . . . . . . . . . . . . . 34
12.2 Valuation. . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION XIII - AMENDMENT . . . . . . . . . . . . . . . . . . . . . . . . . 35
13.1 Amendment. . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION XIV - TERMINATION. . . . . . . . . . . . . . . . . . . . . . . . . 36
14.1 Right to Terminate . . . . . . . . . . . . . . . . . . . . . . . 36
14.2 Sale or Bankruptcy of Employer . . . . . . . . . . . . . . . . . 36
14.3 Distribution Upon Termination. . . . . . . . . . . . . . . . . . 36
14.4 Power of Trustee . . . . . . . . . . . . . . . . . . . . . . . . 36
14.5 Merger or Consolidation. . . . . . . . . . . . . . . . . . . . . 37
SECTION XV - RESIGNATIONS - REPLACEMENTS . . . . . . . . . . . . . . . . . 38
15.1 Resignation. . . . . . . . . . . . . . . . . . . . . . . . . . . 38
15.2 Vacancy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION XVI - WITHDRAWALS. . . . . . . . . . . . . . . . . . . . . . . . . 39
16.1 Withdrawals Permitted. . . . . . . . . . . . . . . . . . . . . . 39
16.2 Withdrawals Without Penalty. . . . . . . . . . . . . . . . . . . 39
16.3 Penalty Withdrawals. . . . . . . . . . . . . . . . . . . . . . . 39
16.4 Prohibited Withdrawals . . . . . . . . . . . . . . . . . . . . . 39
16.5 Requests for Withdrawals . . . . . . . . . . . . . . . . . . . . 39
16.6 Limitation on Withdrawals from Fund O. . . . . . . . . . . . . . 40
SECTION XVII - ADDITIONAL EMPLOYERS. . . . . . . . . . . . . . . . . . . . 41
17.1 Adoption by Subsidiaries . . . . . . . . . . . . . . . . . . . . 41
SECTION XVIII - MAXIMUM ADDITIONS. . . . . . . . . . . . . . . . . . . . . 42
18.1 No Other Plans . . . . . . . . . . . . . . . . . . . . . . . . . 42
18.2 Other Defined Contribution Plans . . . . . . . . . . . . . . . . 42
18.3 Other Defined Benefit Plans. . . . . . . . . . . . . . . . . . . 43
18.4 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . 43
iii
<PAGE>
SECTION XIX - ROLLOVERS. . . . . . . . . . . . . . . . . . . . . . . . . . 45
19.1 Rollover . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
19.2 Plan to Plan Transfer. . . . . . . . . . . . . . . . . . . . . . 45
19.3 Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION XX - TOP-HEAVY RESTRICTIONS. . . . . . . . . . . . . . . . . . . . 46
20.1 When Applicable. . . . . . . . . . . . . . . . . . . . . . . . . 46
20.2 Top Heavy Ratio. . . . . . . . . . . . . . . . . . . . . . . . . 46
20.3 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . 47
20.4 Top Heavy Limitations. . . . . . . . . . . . . . . . . . . . . . 48
SECTION XXI - SUPPLEMENTAL PROVISIONS RELATING
TO EMPLOYEES OF MINNESOTA TITLE FINANCIAL CORPORATION. . . . . . . . . . . 50
21.1 Applicability of this Section. . . . . . . . . . . . . . . . . . 50
21.2 Eligibility and Credit for Service . . . . . . . . . . . . . . . 50
21.3 Treatment of Special Accounts. . . . . . . . . . . . . . . . . . 50
21.4 Treatment of Regular Accounts. . . . . . . . . . . . . . . . . . 50
21.5 Segregated Accounts. . . . . . . . . . . . . . . . . . . . . . . 51
SECTION XXII - MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . 52
22.1 Fiduciary Duties . . . . . . . . . . . . . . . . . . . . . . . . 52
22.2 Assignment of Accounts Prohibited. . . . . . . . . . . . . . . . 52
22.3 Evidence of Actions. . . . . . . . . . . . . . . . . . . . . . . 52
22.4 Restrictions Remain. . . . . . . . . . . . . . . . . . . . . . . 52
22.5 No Contract of Employment. . . . . . . . . . . . . . . . . . . . 52
22.6 No Discrimination. . . . . . . . . . . . . . . . . . . . . . . . 52
22.7 Controlling Law. . . . . . . . . . . . . . . . . . . . . . . . . 53
22.8 Named Fiduciaries. . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION XXIII - DIRECTED INVESTMENT OF PARTICIPANTS' CONTRIBUTIONS . . . . 54
23.1 Two Funds. . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
23.2 Change of Investment Election. . . . . . . . . . . . . . . . . . 54
23.3 Election to Transfer and Timing. . . . . . . . . . . . . . . . . 54
23.4 Amount Subject to Being Transferred. . . . . . . . . . . . . . . 54
23.5 Effecting the Election to Transfer . . . . . . . . . . . . . . . 55
23.6 Election as to Future Contributions. . . . . . . . . . . . . . . 55
23.7 Irrevocable. . . . . . . . . . . . . . . . . . . . . . . . . . . 55
SECTION XXIV - DIRECTED INVESTMENT OF EMPLOYER
CONTRIBUTIONS -- AGE 55 DIVERSIFICATION. . . . . . . . . . . . . . . . . . 56
24.1 Eligibility. . . . . . . . . . . . . . . . . . . . . . . . . . . 56
24.2 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . 56
24.3 Timing of the Election . . . . . . . . . . . . . . . . . . . . . 56
24.4 Diversification. . . . . . . . . . . . . . . . . . . . . . . . . 57
24.5 Actual Transfer. . . . . . . . . . . . . . . . . . . . . . . . . 57
iv
<PAGE>
SECTION I - PURPOSE
-------------------
1.1 Introduction.
-------------
Effective January l, 1978 the Old Republic International Corporation
Employees Savings and Profit Sharing Plan (hereinafter referred to as the
"Former Plan") was created to provide retirement income for eligible
employees of Old Republic International Corporation and certain other
corporations affiliated with the Company which have adopted this Plan.
Effective January 1, 1979, January l, 1980, and January 1, 1984 the Former
Plan was amended and restated as the Old Republic International Corporation
Employees Savings and Stock Ownership Plan (hereinafter referred to as the
"Plan"). Effective January l, 1989 the Plan is further restated.
1.2 Qualified Plan.
---------------
The Plan and Trust are intended to meet the requirements of Sections
401(a) and 501(a) of the Internal Revenue Code of 1986, as amended from time
to time, and the Employee Retirement Income Security Act of 1974, as amended
from time to time. The Plan is intended to be a leveraged employee stock
ownership plan.
<PAGE>
SECTION II - EFFECTIVE DATE - DEFINITIONS
-----------------------------------------
2.1 Effective Date.
--------------
Originally the Plan was effective as of January l, 1978. The Plan
was restated effective as of January l, 1979, January 1, 1980, and January 1,
1984. This restatement shall be effective January l, 1989, except where
indicated.
2.2 Definitions.
-----------
As used herein, the following terms shall have the meaning set after
each:
(a) "Affiliated Company" shall mean:
(1) a Subsidiary as defined in subparagraph 2.2(w) except that
eighty percent (80%) shall replace fifty percent (50%) each time
the latter occurs in that subparagraph;
(2) a partnership or other entity which is controlled directly
or indirectly eighty percent (80%) or more by the Company but
only for the period during which such control exists;
(3) a corporation, partnership, or other entity which owns
directly or indirectly eighty percent (80%) or more of the
voting stock of the Company but only for the period during which
ownership exists;
(4) a corporation, partnership, or other entity which an entity
specified in subparagraph (3) above owns or controls in a manner
as specified in subparagraphs (1) or (2) above, but only for the
period during which such ownership or control exists;
(5) a corporation, partnership, or other entity which is a member
of an affiliated service group with the Company, as defined in
Section 414(m) of the Code, but only for the period during which such
affiliation exists; and
(6) a corporation, partnership, or other entity which is required
to be aggregated with the Company pursuant to Section 414 of the Code,
but only for the period during which such aggregation is required.
(b) "Allocation Date" shall mean the close of the last business day of
the semiannual accounting periods which together comprise a Plan Year.
(c) "Annual Additions" shall mean with respect to any Participant the sum
of the following amounts allocated to his Accounts during the Plan Year
under this Plan or any other defined contribution plan sponsored by the
Employers:
(1) all Employer contributions;
2
<PAGE>
(2) all forfeitures;
(3) all Employee contributions;
(4) amounts allocated after March 31, 1984 to an individual medical
account, as defined in Code Section 415(l)(2), which is part of a
defined benefit plan maintained by the Company; and
(5) amounts derived from contributions paid or accrued after
December 31, 1985, in taxable years ending after that date, which are
attributable to post-retirement medical benefits allocated to a
separate account of a Key Employee of a welfare benefit fund
maintained by the Company.
(d) "Annual Net Profit" shall mean the net profit of each Employer as
calculated by the chief accounting officer or any other person designated
by the Board of Directors of the Employer in accordance with generally
accepted accounting principles, except that no deduction or addition shall
be made for net operating loss carryovers, and realized or unrealized
capital gains and losses and gains from the sale of property used in trade
or business as defined in Section 1231(b) of the Code,and any extraordinary
credits or charges shall not be included. "Annual Net Profit" of the
Company shall mean the consolidated Annual Net Profit of the Company.
(e) "Beneficiary" shall mean any person (other than a Participant),estate,
trust or organization entitled to receive benefits hereunder.
(f) "Calculation Year" shall mean the Company's fiscal year immediately
preceding the year for which the Company contribution is being calculated.
(g) "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
(h) "Committee" shall mean the Administration Committee appointed pursuant
to Section VI of this Plan.
(i) "Company" shall mean Old Republic International Corporation, a
corporation organized under the laws of the State of Delaware.
(j) "Company Stock" shall mean shares of any class of stock, preferred or
common, of the Company.
(k) "Compensation" shall mean a Participant's total wages, salaries, and
other amounts received by a Participant from an Employer during the
calendar year that are required to be reported as wages on the
Participant's Form W-2 including, but not limited to, compensation for
services on the basis of a percentage of profits and bonuses. However, for
the purposes of the Plan,the amount of a Participant's Compensation for any
year is limited to $200,000 ($150,000,effective for Plan Years beginning on
or after January 1, 1994), as adjusted by the Secretary of the Treasury
3
<PAGE>
under Section 415(d) of the Code. For purposes of computing the above
dollar limitation, the rules of Section 414(q)(6) of the Code shall apply,
except that the term "family" shall include only the Participant's spouse
and lineal descendants under age 19 at the close of the year. If, as a
result of the application of such rules the adjusted dollar limitation is
exceeded, then the limitation shall be prorated among the affected
individuals in proportion to each such individual's Compensation determined
under this subparagraph prior to the application of this limitation. In
addition, the term "Compensation" shall not include:
(1) contributions to this Plan or another pension or profit
sharing plan that are not includable in the Participant's gross
income in the year of contribution;
(2) a distribution from this Plan or another funded plan of
deferred compensation to a Participant, regardless of whether
such distribution is includable in the Participant's gross
income in the year of distribution;
(3) amounts realized from the exercise of a non-qualified stock
option, or when restricted stock (or property) held by a
Participant either becomes freely transferable or is no longer
subject to a substantial risk of forfeiture;
(4) amounts realized from the sale, exchange or other
disposition of stock acquired under a qualified stock option; and
(5) other amounts which receive special tax benefits, such as
premiums for group term life insurance (but only to the extent
that the premiums are not includable in the gross income of the
Participant).
(l) "Employee" shall mean any individual employed by an Employer.
"Employee" shall include "Leased Employees" within the meaning of Section
414(n)(2) of the Code. "Employee" shall include officers but shall not
include directors who are not otherwise officers or employees. "Employee"
shall not include individuals employed on a temporary basis which means
that when they are hired they are hired for a limited period of less than
one year.
(m) "Employer" and "Employers" shall mean the Company and each other
corporation which with the consent of the Company, adopts this Plan as
provided in Section XVII hereof. As of the effective date of this restated
Plan the Employers other than the Company are listed in Schedule A attached
hereto and made a part hereof.
(n) "ERISA" shall mean Public Law No. 93-406, the Employee Retirement
Income Security Act of 1974, as amended from time to time.
(o) "Highly Compensated Employee" shall mean a Participant described in
Section 414(q) of the Code and the regulations thereunder. Generally,
Section 414(q) provides that a Highly Compensated Employee is an Employee
who during the Plan Year or preceding Plan Year:
4
<PAGE>
(1) was at any time a 5% owner of the Company or an Affiliated
Company during the Plan Year or the preceding Plan Year;
(2) received compensation from the Company or an Affiliated
Company in excess of $75,000 during the 12-month period preceding
the Plan Year (as adjusted for cost-of-living increases under
Section 415(d) of the Code);
(3) received compensation from the Company or an Affiliated
Company in excess of $50,000 during the 12-month period preceding
the Plan Year (as adjusted for cost-of-living increases under
Section 415(d) of the Code) and was in the top 20% of the most
highly paid Employees for such year; or
(4) was at any time an officer of the Company and received
compensation greater than 50% of the amount in effect under
Section 415(b)(1)(A) of the Code (as adjusted for cost-of-living
increases under Section 415(d) of the Code);
(5) any Employee of the Company or an Affiliated Company who is
an Employee described in subparagraphs (2), (3), or (4) above
when such subparagraphs are modified to substitute the current
Plan Year for the 12-month period preceding the Plan Year and one
of the 100 Employees receiving the most compensation during the
Plan Year; or
(6) a former Employee who, with respect to the Company or an
Affiliated Company, separated from service in a prior Plan Year
and was in such Plan Year a Highly Compensated Employee in either
the Plan Year in which he terminated service or any Plan Year
ending on or after the Employee's 55th birthday.
For purposes of this subparagraph, "compensation" shall mean
compensation as defined in Code Section 415(c)(3), including amounts
contributed which are excludible from gross income under Code Sections 125,
402(a)(8), 402(h), or 403(b), and shall be limited to $200,000 ($150,000
for Plan Years beginning on or after January 1, 1994), as adjusted by the
Secretary of the Treasury to include cost-of-living increases under Code
Sections 401(a)(17) and 415(d)). In addition, if an Employee is a family
member of either a 5% or more owner of the Company or an Affiliated
Employer or a Highly Compensated Employee who is one of the 10 top
Employees when ranked on the basis of compensation, then such family member
shall not be considered a separate Employee, and the compensation,benefits,
and contributions of such Employee shall be aggregated with the 5% owner or
Highly Compensated Employee. For purposes of this subparagraph, a "family
member" shall mean a spouse, a lineal descendant or ascendant, or the
spouse of a lineal descendant or ascendant.
(p) "Hour of Service" shall mean the following:
(1) each hour for which an Employee is paid, or entitled to
payment, for the performance of duties for an Employer during the
applicable Plan Year;
5
<PAGE>
(2) each hour for which an Employee is paid, or entitled to
payment, by an Employer on account of a period of time during
which no duties are performed (irrespective of whether the
employment relationship has terminated) due to vacation, holiday,
illness, incapacity (including disability), layoff, jury duty
military duty or leave of absence. Notwithstanding the preceding
sentence,
(i) No more than 501 Hours of Service are required to be
credited under this subparagraph 2.2(p)(2) to an Employee on
account of any single continuous period during which the
Employee performs no duties (whether or not such period
occurs in a single Plan Year);
(ii) An hour for which an Employee is directly or indirectly
paid, or entitled to payment, on account of a period during
which no duties are performed is not required to be credited
to the Employee if such payment is made or due under a plan
maintained solely for the purpose of complying with
applicable workmen's compensation, or unemployment
compensation or disability insurance laws; and
(iii) Hours of Service are not required to be credited for
a payment which solely reimburses an Employee for medical or
medically related expenses incurred by the Employee.
For purposes of this subparagraph 2.2(p)(2), a payment shall be
deemed to be made by or due from the Employer regardless of
whether such payment is made by or due from the Employer
directly, or indirectly through, among others, a trust fund, or
insurer, to which the Employer contributes or pays premiums and
regardless of whether contributions made or due to the trust
fund, insurer or other entity are for the benefit of particular
Employees or are on behalf of a group of Employees in the
aggregate.
(3) each hour for which back pay, irrespective of mitigation of
damages, is either awarded or agreed to by the Employer. The
same Hours of Service shall not be credited both under sub-
paragraph 2.2(p)(l) or subparagraph 2.2(p)(2), as the case may
be and under this subparagraph 2.2(p)(3).
(4) For the purpose of counting Hours of Service for
eligibility and vesting, service with an Affiliated Company
immediately preceding or immediately succeeding service with an
Employer shall be treated as service with the Employer.
An Employee who is paid on a salaried basis shall receive credit for no
fewer than 190 Hours of Service for each month during which he works at
least one hour. In the case of a payment which is made or due on account
of a period during which an Employee performs no duties, and which results
in the crediting of Hours of Service under subparagraph 2.2(p)(2), or in
the case of an award or agreement for back pay, to the extent that such
award or agreement is made with respect to a period described in subpara-
graph 2.2(p)(2), the number of Hours of Service to be credited shall be
determined on the basis of the rules set forth in 29 Code of Federal
6
<PAGE>
Regulations Section 2530.200b-2(b). The crediting of Hours of Service to
the appropriate computation period shall be made on the basis of the rules
set forth in 29 Code of Federal Regulations Section 2530.200b-2(b) and (c).
(q) "Normal Retirement Date" shall mean the day on which an Employee
attains age sixty-five.
(r) "One Year Break in Service" shall mean any Plan Year during which a
Participant has not completed more than five hundred (500) Hours of
Service with the Employers, except for a Plan Year in which the Employee
retires, dies, or suffers permanent disability. Solely for purposes of
determining whether an Employee has incurred a "Break in Service," an
Employee who is absent from work for any period on or after January 1,
1985: (i) by reason of the Employee's pregnancy; (ii) by reason of the
birth of a child of the Employee; (iii) by reason of the placement of a
child with the Employee in connection with the adoption of such child by
the Employee; or (iv) for purposes of caring for such child for a
period beginning immediately following such birth or placement, shall be
credited with the Hours of Service which would normally have been
credited to the Employee but for such absence, or 8 Hours of Service for
each day of such absence if the Plan is unable to determine the number of
Hours of Service that would normally have been credited to the Employee
but for such absence; provided, however, that the total amount of Hours of
Service credited by reason of any such pregnancy or placement shall not
exceed 501 Hours of Service. Hours of Service credited pursuant to the
preceding sentence shall be credited only to the Plan Year during which
the absence commenced if a One Year Break in Service would be prevented by
the crediting of such Hours to such Plan Year, or if the Hours are not
required to prevent a One Year Break in Service for such Plan Year, then
only to the immediately following Plan Year.
(s) "Participant" shall mean an Employee who becomes eligible to
participate in this Plan pursuant to Section III hereof.
(t) "Plan" shall mean this Old Republic International Corporation
Employees Savings and Stock Ownership Plan as amended from time to time.
(u) "Plan Year" shall mean the twelve month period beginning January l
and ending December 31.
(v) "Recognized Compensation" of any Participant for any year shall
mean a Participant's total wages, fees for professional services and
other amounts received by a Participant during the calendar year
(without regard to whether or not an amount is paid in cash) for personal
services actually rendered in the course of employment with Adopting
Employers to the extent that the amounts are includable in gross, and
excluding the following:
(1) contributions to this Plan or another pension or profit
sharing plan that are not includable in the Participant's gross
income in the year of contribution;
7
<PAGE>
(2) a distribution from this Plan or another funded plan of
deferred compensation to a Participant, regardless of whether
such distribution is includable in the Participant's gross income
in the year of distribution;
(3) amounts realized from the exercise of a non-qualified stock
option, or when restricted stock (or property) held by a
Participant either becomes freely transferable or is no longer
subject to a substantial risk of forfeiture;
(4) amounts realized from the sale, exchange or other
disposition of stock acquired under a qualified stock option;
(5) other amounts which receive special tax benefits, such as
premiums for group term life insurance (but only to the extent
that the premiums are not includable in the gross income of the
Participant); and
(6) commissions.
Recognized Compensation shall include contributions made on behalf of the
Participant pursuant to the Participant's salary reduction agreement under
any plan sponsored by an Employer which plan meets the requirements of
either sections 401(a) and 401(k) of the Code or section 125 of the Code;
provided, however, for the purposes of the Plan, the amount of a
Participant's Recognized Compensation for any year is limited to $200,000
($150,000, effective for Plan Years beginning on or after January 1, 1994),
as adjusted by the Secretary of the Treasury under Section 415(d) of the
Code. For purposes of computing the above dollar limitation, the rules of
Section 414(q)(6) of the Code shall apply, except that the term "family"
shall include only the Participant's spouse and lineal descendants under
age 19 at the close of the year.
(w) "Subsidiary" shall mean any corporation of which more than fifty
percent (50%) of the voting stock now is, or hereafter shall be, owned
directly or indirectly by the Company, but only during the period more than
fifty percent (50%) of such voting stock is so owned by the Company.
(x) "Trust" shall mean the Old Republic International Corporation
Employees Savings and Stock Ownership Trust, as amended from time to time.
(y) "Trust Fund" shall mean all the money and other property held by the
Trustee under the Trust.
(z) "Trustee" shall mean the Trustee or Trustees of the Trust acting from
time to time.
(aa) "Year of Service" shall mean:
8
<PAGE>
(1) For Plan Years beginning after December 31, 1977, each
Plan Year during which an Employee has completed one thousand
(1,000) or more Hours of Service with the Employer.
(2) For Plan Years ending before January l, 1978, each year
an Employee was employed by an Employer.
2.3 Gender and Number.
-----------------
Wherever appropriate, words used in this Plan in the singular include the
plural, and the masculine include the feminine.
9
<PAGE>
SECTION III - ELIGIBILITY
-------------------------
3.1 General Rule.
------------
Each present or future Employee shall become a Participant on the January l
following his date of hire, provided he completes one thousand (l,000) or more
Hours of Service during his first twelve (12) months of employment with an
Employer.
3.2 Secondary Rule.
---------------
If an Employee fails to meet the requirements of paragraph 3.l above, he
shall become a Participant as of the first day of the Plan Year beginning after
his date of hire or any Plan Year thereafter during which he completes one Year
of Service with an Employer.
3.3 Leased Employees.
----------------
Leased employees within the meaning of Section 414(n)(2) of the Code shall
not be eligible to participate in this Plan under either the General Rule of
paragraph 3.1 or the Secondary Rule of paragraph 3.2.
3.4 Notice of Eligibility.
---------------------
An Employer shall give each Employee written notice of his becoming a
Participant in the Plan within a reasonable period after he becomes a
Participant.
3.5 Consent of Participants and Beneficiary Designation.
---------------------------------------------------
Each Participant shall execute a written statement on a form or forms to be
provided by the Committee, such written statement to provide the following:
(a) the designation by the participant of his Beneficiary or Beneficiaries
who shall be entitled to receive distributions under the Plan in the event
of such Participant's death; and
(b) the consent by the Participant to be bound by any decision or action
taken in good faith as a result of the Committee's determination of facts
in applying the provisions of the Plan.
3.6 Contributions By Ineligible Employees.
-------------------------------------
Because an Employee is permitted to contribute as of the January 1
following his date of hire, it is possible for an Employee to begin to make
contributions pursuant to paragraph 4.1 before he actually completes 1,000
Hours of Service during his first twelve (12) months of employment. If such
an employee fails to meet the 1,000 Hours of Service requirement either in
his first twelve months of employment or his first full Plan Year of
employment and therefore fails to be eligible to become a Participant
although he actually had made contributions to the Plan, his contributions
shall remain in the Plan and shall be treated in the same manner as
contributions of a Participant, provided that he shall not share in the
Company Matching Contributions for the Plan Year during which he is not a
Participant.
10
<PAGE>
SECTION IV - CONTRIBUTIONS BY PARTICIPANTS
------------------------------------------
4.1 Employee Contributions.
----------------------
A Participant may but is not required to contribute each Plan Year
not less than l% nor more than 15% in whole percentages of his annual
Recognized Compensation limited to $150,000. Amounts of a Participant's
contributions up to 5% (beginning in 1990, 6%) of his Recognized Compensation
may create additional Employer contributions pursuant to paragraph 5.2
hereof.
4.2 Change of Rate of Contributions.
-------------------------------
Any contributions by a Participant pursuant to this Section IV shall
be withheld by his Employer each payday and remitted by it periodically (at
least quarterly) to the Trustee. Within the prescribed limits, a Participant
may change the percentage of his compensation to be contributed pursuant to
paragraph 4.l hereof. Any such change shall take effect on the January l or
the July l following receipt by his Employer of a written request of such
change from the Participant.
4.3 Limitation.
----------
Participant contributions for any Plan Year pursuant to this Section IV
shall be limited as provided in paragraph 5.8.
11
<PAGE>
SECTION V - EMPLOYER CONTRIBUTIONS
----------------------------------
5.1 1% Contribution.
---------------
For each Plan Year beginning prior to January 1, 1990 each Employer
shall contribute to the Plan on behalf of each of the Participants employed
by the Employer an amount equal to l% of the Recognized Compensation paid to
the Participant during the year. For the purposes of this Section V and
paragraphs 7.6 through 7.8, "employed by the Employer" means that the
Employee is employed for at least l,000 Hours of Service during the Plan Year
and is employed by the Employer on the last day of the Plan Year, provided,
however, that a Person who dies or who retires after attaining his Normal
Retirement Date will be deemed to be employed on the last day of the Plan
Year of his death or his retirement.
5.2 Employer Matching Contributions.
-------------------------------
In addition to the contribution pursuant to paragraph 5.1 hereof, for
the 1989 Plan Year, each Employer shall contribute to the Plan on behalf of
each of the Participants employed by the Employer an amount equal to a
percentage of the first l% of a Participant's Recognized Compensation
contributed by the Employer plus a percentage of the amounts (not to exceed
5%) contributed by the Participant pursuant to Section IV hereof and not
withdrawn during the Plan Year pursuant to Section XVI as set forth in
Schedule B attached hereto and made a part hereof. For each Plan Year
beginning after December 31, 1989, each Employer shall contribute to the Plan
on behalf of each Participant who contributes to the Plan a percentage of the
amounts (not to exceed 6%) contributed by the Participant pursuant to Section
IV hereof and not withdrawn during the Plan Year pursuant to Section XVI.
The matching percentage to be contributed by the Employer each Plan Year
shall be based upon the percentage increase in average operating earnings per
share for the most recent five year periods. This percentage increase in
average operating earnings per share is obtained by comparing the average
operating earnings per share for the Company for the five years ending with
the Calculation Year, with the same average for the five years ending the
year prior to the Calculation Year. Operating earnings per share are
determined pursuant to generally accepted accounting principles and are equal
to net income per share exclusive of realized capital gains or losses. The
matching percentage is set forth in the following schedule:
Percentage of Percentage increase in average operating earnings per share
Recognized for the most recent 5 years ending with the Calculation Year
Compensation over the average for the 5 years ending with the Plan Year
Contributed prior to the Calculation Year
Less than 6% 6% to 9% 9.01% to 15% 15.01% to 20% Over 20%
------------ -------- ------------ ------------- --------
Up to 1.00% 30%* 40%* 65%* 100%* 140%*
1.01% to 2.00% 28% 38% 63% 98% 138%
2.01% to 3.00% 26% 36% 61% 96% 136%
3.01% to 4.00% 24% 34% 59% 94% 134%
4.01% to 5.00% 22% 32% 57% 92% 132%
12
<PAGE>
5.01% to 6.00% 20% 30% 55% 90% 130%
6.01% to 15.00% None None None None None
*Employer Contributions as a percentage of Employee's contribution.
Notwithstanding anything to the contrary, no Employer Matching Contribution
shall be made for 1993.
5.3 Discretionary Employer Contributions.
------------------------------------
In addition to the contributions set forth in paragraphs 5.1 and 5.2
hereof each Employer may contribute such additional amounts as the Board of
Directors of the Employer may determine from time to time. The amount of the
Employers' contributions are subject to the following limitations:
(a) No contributions shall be made by any of the Employers for any Plan
Year if the Annual Net Profit Before Taxes for all Employers in the
aggregate for such year is less than $2,500,000.
(b) No contribution shall be made on behalf of any Participant if the
allocation of such contribution to his account would be contrary to the
provisions of Section XVIII. In the event the allocation of any
contribution to any Participant would be contrary to the provisions of
Section XVIII hereof, the amount of the Employer contribution shall be
reduced to the extent necessary to comply with Section XVIII.
(c) No contribution shall be made by any Employer for any Plan Year
which contribution exceeds the maximum amount deductible by it for such
year under Section 404 of the Code or any comparable section of any future
legislation which amends, supplements or supersedes said section.
5.4 Consequences if Employer Cannot Contribute.
------------------------------------------
If an Employer cannot contribute to the full extent required by paragraphs
5.l and 5.2 hereof because of the limitations of paragraph 5.3(c) and if the
deficiencies in such contributions are not entirely made-up by another Employer,
contributions pursuant to paragraphs 5.l and 5.2 hereof on behalf of Partici-
pants employed by the Employer shall be reduced in the same proportion that the
contributions made bear to the contributions that would have been made but for
such limitations.
5.5 Cash or in Kind.
---------------
Employer contributions for any year may be made wholly or partly in cash
or other property and the transfer of any such property to the Trustee shall be
at the fair market value of the property as determined by the Employer at the
time of such transfer. Each Employer shall pay to the Trustee its contribution
to the Plan for each Plan Year within the time prescribed by law, including
extensions of time, for the filing of its federal income tax return for the
Plan Year.
13
<PAGE>
5.6 No Reversion.
------------
Except for the provisions of paragraph 5.7 hereof, in no event shall
any part of the Trust Fund revert to an Employer or be used for purposes
other than for the exclusive benefit of Participants in this Plan or their
Beneficiaries.
5.7 Return Upon Mistake.
-------------------
Notwithstanding anything herein to the contrary, an Employer may
request that a contribution which was made by a mistake of fact or conditioned
upon the qualification of the Plan under Section 401 of the Code which condition
was not met, or which was conditioned upon the deductibility of the contribution
under Section 404 of the Code and was disallowed, shall be returned to the
Employer within one year after the payment of the contribution, denial of
qualification, or the disallowance of the deduction (to the extent disallowed)
respectively.
5.8 ACP Discrimination Test.
-----------------------
Participant contributions pursuant to Section IV and Matching Employer
Contributions to this Plan for any Plan Year shall not exceed the maximum amount
permitted under Code Section 401(m)(2) and Treasury Regulation Section 1.401(m)
- -1(b)(2) of the regulations thereunder. These provisions are incorporated
herein by reference and generally require that:
(a) the ACP for eligible Highly Compensated Employees not exceed
that of all other eligible Participants by more than two percentage
points, and that the ACP for eligible Highly Compensated Employees
be not more than that of all other eligible Employees multiplied by
2.0; or
(b) the ACP of eligible Highly Compensated Employees not exceed
that of the other eligible Participants multiplied by 1.25.
For purposes of this paragraph, the "ACP" for an individual Employee for a
Plan Year shall be the ratio of the sum of employee contributions and
Employer Matching Contributions made to the Plan on behalf of such Employee
for the Plan Year to the Employee's Compensation for the portion of the Plan
Year during which he is a Participant. However, if the Plan is aggregated
with one or more other plans described under Code section 401(a) in order to
meet the requirements of Code sections 401(a)(4) or 410(b), all such plans
shall be aggregated for purposes of computing the ACP. The "ACP" of a group
of Employees for a Plan Year shall be the average of the ACPs of the
Employees in the group. For purposes of calculating the ACP, an Employer
Matching Contribution shall be taken into account for a Plan Year only if it
is made on account of the Employee's contributions for the Plan Year, is
allocated to the Employee's accounts during the Plan Year, and is actually
paid to the Trust within 12 months following the last day of the Plan Year.
14
<PAGE>
5.9 Correction of Excess Aggregate Contributions - ACP Test.
-------------------------------------------------------
(a) To the extent necessary to meet the requirements of paragraph 5.8
hereof, Participant contributions pursuant to paragraph 4.1 and the
corresponding Employer Matching Contributions allocated with respect
thereto for Highly Compensated Employees shall be reduced, beginning with
the highest ACPs until either such requirements are satisfied or the next
highest ACP of a Highly Compensated Employee is reached. This process
shall continue until the Plan conforms to the requirements described in
paragraph 5.8. However, if a Highly Compensated Employee's ACP is
determined by use of the family aggregation rules under Code section
414(q)(6) and if such ACP must be reduced pursuant to Treasury Regulation
Section 1.401(m)-1(e)(2), such Highly Compensated Employee's ACP shall be
reduced by allocating the excess contributions for the family group among
the family members in proportion to each family member's Matching Employer
Contributions.
(b) Employee contributions for a Plan Year reduced pursuant to sub-
paragraph (a) above shall be distributed to Highly Compensated Employees
together with any income and minus any loss allocable to such excess
aggregate contributions for the Plan Year of contribution on or before
March 15 following the end of the Plan Year, but in no event later than
the close of the following Plan Year.
(c) For Plan Years beginning before January 1, 1991, Employer Matching
Contributions reduced pursuant to subparagraph (a) above shall be
distributed to Highly Compensated Employees together with any income and
minus any loss allocable to such excess aggregate contributions for the
Plan Year of contribution on or before March 15 following the end of the
Plan Year, but in no event later than the close of the following Plan Year.
For Plan Years beginning on or after January 1, 1991, Employer Matching
Contributions reduced pursuant to subparagraph (a) above together with any
income and minus any loss allocable to such excess contributions for the
Plan Year of contribution shall be forfeited as of the end of the Plan Year
for which the contribution was made. Notwithstanding any other provisions
herein regarding the allocation of forfeitures, forfeitures pursuant to
this subparagraph (c) shall be applied first to reduce the Employer
Matching Contributions or Discretionary Employer Contributions for the
year the excess arose, and to reduce Employer Matching Contributions or
Discretionary Employer Contributions for future years as soon as possible.
15
<PAGE>
SECTION VI - ADMINISTRATION COMMITTEE
-------------------------------------
6.1 Members.
-------
An Administration Committee consisting of three or more members shall
be appointed by a majority of the Boards of Directors of the Company. Any
member of the Committee may but need not be an employee, director, officer,
or stockholder of an Employer.
6.2 Secretary.
---------
The Committee will appoint a Secretary, who may but need not be a
member of the Committee; and any documents required to be filed with, or any
notice required to be given to the Committee will be properly filed or given
if mailed by registered mail or delivered to the Secretary of the Committee
in care of the Company.
6.3 Duties.
------
The Committee shall have the duty and authority to interpret and
construe this Plan in regard to all questions of eligibility, the status and
rights of Participants, Beneficiaries, and other persons hereunder, and the
manner and time of the payment of any benefits hereunder. It shall direct
the Trustee as to the names of payees and the time, amount and manner of the
payment of benefits under Section XI hereof. The Committee shall furnish to
Participants forms for the designation of Beneficiaries, and shall maintain
a file of Participants' Beneficiary designations. In general, it shall be
charged with the overall management of the plan of employee benefits herein
provided for, subject to the powers and duties of the Trustee with respect to
the Trust Fund.
6.4 Majority Vote.
-------------
The decision of the Committee as to any matter relating to this Plan
shall be determined by a majority vote or other affirmative expression of a
majority of the members. Its decision or action on any matters within its
discretion, after proper notification and opportunity for review have been
given in accordance with paragraph 6.10 hereof, shall be final and conclusive
as to the parties hereto and as to all Participants, Beneficiaries, and other
persons claiming any rights hereunder, provided that no member of the
Committee shall participate in any decision specifically affecting his own
interest in the Trust. The Trustee shall be fully protected in acting upon
the decision of the Committee as set forth in writing over the signature of
the Secretary or a majority of its members. The Trustee shall be entitled to
rely upon the names of Committee members as last certified to by the Company,
and to rely upon the name of the Secretary of the Committee as last certified
to by a majority of its members.
6.5 Indemnification.
---------------
The Company shall indemnify and save the members of the Committee,
and each of them, harmless from the effects and consequences of their acts,
omissions, and conduct in their official capacity, except to the extent that
such effects and consequences shall result from their own willful misconduct.
16
<PAGE>
6.6 No Compensation.
---------------
No member of the Committee shall receive any compensation or fee for
his services, but the Company shall reimburse the Committee members for any
necessary expenditures incurred in the discharge of their duties as Committee
members.
6.7 Counsel and Agents.
------------------
The Committee may employ such counsel (who may be of counsel for an
Employer) and agents, and may arrange for such clerical and other services as
it may require in carrying out the provisions of this Plan.
6.8 Records.
-------
The Committee shall keep a record of all its proceedings and shall
keep or cause to be kept all such books of account, records and other data as
may be necessary or advisable in its judgment for the administration of the
plan of employee benefits herein provided.
6.9 Successor.
---------
In the event the Committee for any reason ceases to function, the
Company shall thereafter have the power and authority granted to the
Committee and the duties imposed upon it by this Agreement.
6.10 Claims Procedure.
----------------
The Committee shall notify in writing any Participant or Beneficiary
whose claim for benefits under the Plan has been denied, setting forth the
specific reasons for such denial, written in a manner calculated to be
understood by the Participant whose claim for benefits has been denied. As
to any Participant or Beneficiary whose claim for benefits has been denied,
the Committee shall afford such Participant or Beneficiary a reasonable
opportunity for a full and fair review by the Committee of the decision
denying the claim.
6.10 Information from the Employers.
------------------------------
Each Employer shall furnish the Committee with the following
information from time to time as shall be necessary to carry out this plan:
(a) compensation of each Participant for each year;
(b) change in the employment status of a Participant, involving:
17
<PAGE>
(1) voluntary resignation
(2) dismissal
(3) other termination of employment; e.g., an Employee's
temporary layoff becoming permanent
(4) retirement on account of age
(5) permanent disability
(6) death
(7) Hours of Service
(c) such other data and information possessed by the Employer as the
Committee may require in the performance of its duties hereunder.
The Employer's determination as to these matters shall be final and binding on
all persons.
6.12 Voting Rights.
-------------
Each Participant shall have the right to exercise the voting rights
of the number of shares of Company Stock held in the Trust the value of which
has been allocated to his accounts. If a Participant does not exercise his
voting rights, the Committee shall have the authority to exercise such voting
rights. Further the Committee shall have the authority and right to exercise
the voting rights of Company Stock held in the Trust the value of which has
not been allocated to a Participant's account.
6.13 Funding Policy.
--------------
The Committee shall from time to time, but in no event less than once
each Plan Year, consider and establish, or reconsider and reestablish, a
funding policy which will encompass the short-term and long-term goals for
income and appreciation of Funds A, C, D, E, F, G, and O. The Committee may
consult with investment advisers or other advisers as the Committee in its
discretion deems necessary. The Committee shall then communicate this
funding policy to the Trustee or others who are responsible for the
investment management of the Trust Fund.
18
<PAGE>
SECTION VII - ACCOUNTING PROVISIONS
7.1 Cash Basis.
----------
All accounting of the Plan and Trust, other than the allocations and
credits of net income or net loss, and Employer contributions as of each
Allocation Date as provided hereafter, shall be rendered on a cash basis.
7.2 Taxes and Expenses.
------------------
All taxes of any and all kinds whatsoever that may be levied or
assessed under existing or future laws upon this Plan, or any income thereof,
shall be paid by the Trustee from the Trust Fund. The expenses incurred by
the Committee in the administration of the Plan including fees for legal,
accounting, investment, custodial, and other services rendered to the
Committee or to the Trustee, and all other proper charges and expenses of the
Committee shall be paid by the Trustee from the Trust Fund. If the Committee
determines that an expense is attributable directly to any specific Fund
hereunder, the Committee in its discretion may direct that such expense be
charged to the particular Fund creating the expense.
7.3 Accounts.
--------
The Committee shall maintain two separate accounts for each Participant,
one to be known as his Individual Contribution Account and the second as his
Employer Contribution Account. The following items shall be credited to or
charged against the accounts of each person as provided herein:
(a) his share in the contributions of the Employers;
(b) his own contributions to the Trust;
(c) his share in the net income or net loss of the Trust;
(d) payments from his account;
(e) shares in the forfeitures from the accounts of other Participants
-- that is, the part of another Participant's share which, upon his
incurring a One Year Break in Service as provided by Section IX does
not vest in him but remains in the Trust Fund.
The credits and charges provided by (a) and (e) shall be made on the last
Allocation Date of each Plan Year. The credits and charges provided by (c)
shall be made as of each Allocation Date. The contributions of each
Participant for each Plan Year provided by (b) shall be allocated and
credited to this Individual Contribution Account periodically when received
by the Trustee. Payments from an Account shall be charged to the Account
when paid.
19
<PAGE>
7.4 Accounts Maintained for Record Keeping Only.
-------------------------------------------
Separate accounts or records may be maintained for operational and
accounting purposes for each Fund, but, except as provided in Section VIII
hereof, no such account shall be considered as segregating any funds or
property in each Fund from any other funds or property contained in such
Fund. In no event shall maintenance of an account or record designated as
the account of a person having a credit in the Plan mean that such person
shall have a greater or lesser interest than that due him under the terms of
this Plan. No person having a credit in the Plan shall have any specific
title in any specific asset in the Trust.
7.5 Allocation of Income and Loss.
-----------------------------
(a) Except as provided in subparagraph (b) below, as of each
Allocation Date, and on each other date as may be determined by the
Committee, the Committee shall determine and allocate the net income or
net loss of each Fund in the Trust, as determined pursuant to paragraph
12.1 hereof, among and shall credit or charge it to the accounts of each
Participant having an interest in the Fund on the date such allocation of
income and loss is made. Such allocations shall be made in the proportion
that the net credit in the Accounts of each such person in the respective
Fund on said date bears to the total net credits in the Accounts of all
such persons in the respective Fund on said date. The allocation of income
and loss shall be made prior to any other allocation as of that date and
shall be based on the actual earnings and losses credited or charged to
Funds in which the Participants' Accounts are invested pursuant to Section
VIII hereof.
(b) $1,860,088 of the income for the six-month period ending on
June 30, 1993, shall be allocated on the basis of the amounts contributed
by Participants pursuant to Section IV hereof during 1993 and not withdrawn
during 1993 pursuant to Section XVI; provided, however, that no Participant
shall receive an allocation under this subparagraph (b) if the total of the
allocations under this subparagraph (b) together with the Annual Additions
exceeds the Maximum Permissible Amount (as defined in paragraph 18.4(c)).
To the extent that an allocation cannot be made as a result of the forgoing
provision, it shall be allocated in accordance with general provisions of
subparagraph (a) hereof.
7.6 Allocation of Special 1% Contribution.
-------------------------------------
As of the last Allocation Date of each Plan Year prior to January 1,
1990, the Committee shall allocate to the Employer Contribution Account of
each Participant who is employed by an Employer on said Allocation Date the
contribution made on his behalf by his Employer pursuant to the first
sentence of paragraph 5.l hereof.
7.7 Allocation of Matching Contribution.
-----------------------------------
As of the last Allocation Date of each Plan Year, the Committee shall
allocate to the Employer Contribution Account of each Participant who is
employed by an Employer on said Allocation Date the matching contribution
made on the Employee's behalf by his Employer pursuant to the schedule in
paragraph 5.2 hereof (or in Schedule B for Plan Years prior to 1990).
20
<PAGE>
7.8 Allocation of Forfeitures and Discretionary Contributions.
---------------------------------------------------------
(a) Discretionary Contributions. As of the last Allocation Date
of each Plan Year the Committee shall allocate the balance of each
Employer's contribution, if any, made pursuant to paragraph 5.3
hereof to the Employer Contribution Accounts of Participants employed
by the Employer on said Allocation Date in the proportion that the
total Recognized Compensation of each such Participant bears to the
total Recognized Compensation of all such Participants.
(b) Forfeitures Prior to 1990. As of the last Allocation Date of
each Plan Year ending prior to January 1, 1990 the Committee shall
allocate the forfeitures from the accounts of Participants to the
Employer Contribution Accounts of all Participants employed by an
Employer on said Allocation Date in the proportion that the total
Recognized Compensation of each such Participant bears to the total
Recognized Compensation of all such Participants.
(c) Forfeitures After 1989. As of the last Allocation Date of each
Plan Year ending after January 1, 1990 the Committee shall allocate
the forfeitures from the accounts of Participants to the Employer
Contribution Accounts of all Participants who have made contributions
during the Plan Year pursuant to Section IV hereof and who are
employed by an Employer on said Allocation Date in the proportion that
the total Recognized Compensation of each such Participant bears to
the total Recognized Compensation of all such Participants who made
contributions.
7.9 Committee Records.
-----------------
The accounts and records of the Committee shall be open to inspection
and audit at all reasonable times by any person designated by an Employer.
Such records shall contain all authorizations, directions and other
information furnished or received by an Employer, the Committee and the
Trustee.
7.10 Participant Statements.
----------------------
As soon as practicable after the end of each Plan Year the Committee
will provide each Participant with a statement of his account balances as of
the last Allocation Date of such year.
21
<PAGE>
SECTION VIII - INVESTMENT OF THE TRUST FUND
-------------------------------------------
8.1 Separate Investment Funds.
-------------------------
The assets of the Trust Fund shall be separated and segregated into
six separate and distinct investment funds. The Committee may create
additional investment funds or eliminate any investment fund at any time.
Funds A and O shall consist of amounts allocated to Individual Contribution
Accounts (Participants' contributions and earnings thereon). Fund B shall
consist entirely of amounts allocated to Employer Contribution Accounts
(Employers' contributions, forfeitures and earnings thereon). Funds E, F and
G shall consist of amounts directed by Participants to be transferred from
Fund B pursuant to the diversification provision of Section XXIV hereof. The
Funds shall be invested as described below.
8.2 Fund A.
------
Fund A, the general investment fund, shall be invested in a
diversified portfolio of shares of common and preferred stock, other equity
investments and fixed income securities, property, both real and personal,
corporate and government bonds, notes and debentures and other fixed income
investments.
8.3 Fund B.
-------
Fund B shall be invested and reinvested entirely in Company Stock.
Employer cash contributions shall be invested in Company Stock as soon as it
is practicable after receipt by the Trustee. In making such purchases the
Trustee shall give due regard to the trading volume of Company Stock at the
time of such purchases and accordingly regulate the amount and timing of such
purchases in order to minimize the effect on market price fluctuations which
may be caused by such purchases. All purchases of Company Stock shall be
subject to any applicable federal or state securities laws and shall be made
in accordance with all applicable rules and regulations promulgated
thereunder. The Trustee may purchase Company Stock directly from the
Company.
8.4 Fund C.
------
[RESERVED]
8.5 Fund D.
------
[RESERVED]
8.6 Fund E.
------
Fund E, the money market fund, shall be invested in a diversified
portfolio of short term fixed income securities, such as U. S. Treasury
bills, corporate commercial paper and certificates of deposit with safety of
principal as a primary goal.
22
<PAGE>
8.7 Fund F.
------
Fund F, the intermediate bond fund shall be invested primarily in
United States Government obligations, state and municipal bonds, corporate
bonds, notes and debentures, commercial paper, certificates of deposit with
maturities of not greater than five years and shares of regulated investment
companies whose investments are limited to fixed income securities and United
States Government obligations with such maturities.
8.8 Fund G.
------
Fund G, shall be invested in a diversified portfolio of shares of
common and preferred stock, property, both real and personal, and in shares
of regulated investment companies whose investments are limited to such
corporate stock investments.
8.9 Fund O.
------
Fund O shall be invested in accordance with the directions of the
Committee in real estate and stocks and bonds as described in Section 4.5 of
the agreement creating the Trust.
8.10 Purchase of Company Stock.
-------------------------
To effectuate the primary purpose of this Plan, that is, the
distribution of benefits under the Plan in the form of Company Stock, the
Trustee shall purchase Company Stock and continue to hold such Company Stock
in Fund B, including any Company Stock contributed by the Company, for
purposes of distribution to Participants and their Beneficiaries
notwithstanding any otherwise applicable rule or principle relating to (i)
diversification of trust assets, or (ii) the speculative character of trust
investments, or (iii) the lack of a fair return on Company Stock commensurate
with the prevailing rate, or (iv) lack of marketability or income provided by
Trust assets, or (v) the probable continual fluctuation in the market value
of Trust assets.
8.11 Loans to Purchase Company Stock.
-------------------------------
The Trustee upon direction of the Committee shall have the power and
authority to borrow or raise money for the purposes of this Plan, including,
but not limited to loans for the purpose of acquiring Company Stock, in such
amount, and upon such terms and conditions, as the Committee shall deem
advisable; and, for any sum so borrowed, to issue its promissory note as
Trustee, and to secure the repayment thereof by pledging only that part of
the Trust Fund consisting of Company Stock purchased with the proceeds of the
loan; and no person lending money to the Trustee shall be bound to see to the
application of the money lent or to inquire into the validity, expediency, or
propriety of any such borrowing.
23
<PAGE>
8.12 Separate Suspense Account.
-------------------------
If Company Stock is purchased with such a loan, it will be accounted
for in a separate suspense account on the books of the Plan and Trust. Its
value will not be allocated to accounts of Participants except as released
under the following formula: Each Plan Year during the duration of the loan,
the number of shares of Company Stock which is released shall equal the
number of the shares of Company Stock held in the suspense account
immediately before the release multiplied by a fraction, the numerator of
which is the amount of the principal and interest paid on the loan for the
year; the denominator of which is the numerator plus the principal and
interest of the loan to be paid for all future years. The number of future
years under the loan must be definitely ascertainable. If the interest rate
under the loan is variable, the interest to be paid in future years shall be
computed by using the interest rate applicable as of the end of the Plan
Year. Income earned on securities held in the suspense account can be used
to pay both interest and principal on the loan used to acquire the
securities.
24
<PAGE>
SECTION IX - VESTING - FORFEITURES
9.1 Full Vesting.
------------
The entire amount of the credit in the accounts of a deceased
Participant or a Participant who reaches his Normal Retirement Date or
actually retires for disability prior thereto, plus any amount allocated to
his accounts thereafter as provided by paragraphs 7.5, 7.6, 7.7, and 7.8,
hereof, shall be vested and shall be paid to the person or persons entitled
thereto at the times and in the manner provided by Section XI hereof.
9.2 Vesting on Termination of Service.
---------------------------------
A portion of the amount of the credits in the accounts of a
Participant as of the Allocation Date coinciding with or next preceding the
day he terminates his service with all Affiliated Companies for any reason
other than his death, retirement on or after his Normal Retirement Date, or
retirement for disability shall be paid to the person or person entitled
thereto at the times and in the manner provided by Section XI hereof. The
amount to be paid shall be known as a "vested interest", and shall be equal
to the sum of the following:
(a) the total credit in his Individual Contribution Account;
(b) an amount equal to the following percentage of his credit in
his Employer Contribution Account:
Completed Years Portion of Credit
of Service with To be Paid
the Employers (Vested Interest)
--------------- -----------------
One 0%
Two 0%
Three 20%
Four 40%
Five 60%
Six 80%
Seven or more 100%
(c) and any net income or net loss allocated to his accounts
thereafter, as provided by paragraph 7.5 hereof.
(d) Notwithstanding the foregoing to the contrary each Participant
whose vested percentage as of December 31, 1988 was greater than the
percentage shown in subparagraph (b) above shall continue to be vested
in no smaller a percentage than he was on December 31, 1988. Increases
25
<PAGE>
in his vesting percentage for service on and after January 1, 1989
shall be based upon the schedule contained in subparagraph (b) above.
Except as to his vested interest, the balance of the credits in the accounts
of a Participant in this Plan who is not fully vested shall cease and be
terminated immediately upon his termination of service with all Affiliated
Companies. The Committee shall direct the Trustee to transfer out of such
Participant's Employer Contribution Account as of the time of his termination
of service the balance in excess of the amount vested in him, as a forfeiture
to be distributed among the Employer Contribution Accounts of the other
Participants according to the procedure provided by paragraph 7.8 hereof.
The percentage to be applied in (b) shall be applied to the Employer
Contribution Account balance as of the Allocation Date immediately preceding
his date of termination before any credits are made to his accounts pursuant
to paragraphs 7.5, 7.6, 7.7, and 7.8 hereof.
9.3 Breaks in Service and Return to Service.
---------------------------------------
(a) If a former Participant who has not incurred five consecutive One
Year Breaks in Service returns to work for an Employer, he shall again
become a Participant as of the first date after his termination during
which he again completes an Hour of Service. His Years of Service earned
prior to his termination of service shall be restored. Any amounts that
were forfeited when he terminated shall not be restored, except pursuant
to paragraphs 9.3(b) and (c) below.
(b) If a partially vested Participant terminates and receives or begins
to receive the balances in his Accounts prior to incurring five
consecutive One Year Breaks in Service and thereafter returns to the
service of an Employer as an Employee under the Plan, and prior to his
Repayment Date repays to his Employer Contribution Account the amount
previously distributed to him from the Account, the Committee shall,
at the end of the Plan Year in which the Participant repays the amount to
his Account, allocate to his Employer Contribution Account the amount
necessary to restore the Employer Contribution Account balance in the
Account prior to his termination. "Repayment Date" shall mean the earlier
of:
(1) the date the Participant incurs five consecutive One Year
Breaks in Service after his distribution has begun; or
(2) the end of the five year period beginning with the
Participant's return to service with an Employer as an Employee.
(c) If a former Participant who returns to work for an Employer prior to
incurring five consecutive One Year Breaks in Service had not begun to
receive a distribution of the balances in his Accounts, any amounts that
were forfeited upon his termination of service shall be restored as set
forth in paragraph 9.4 below.
(d) If partially or fully vested former Participant returns to work for
an Employer, his prior Years of Service shall be restored no matter how
26
<PAGE>
many One Year Breaks in Service he has incurred. If a former Participant
who has no vested interest incurs a five consecutive One Year Breaks in
Service, then he shall forfeit his prior Years of Service.
9.4 Source of Restoration of Forfeitures.
------------------------------------
The amount necessary to restore the balances in a returned
Participant's Employer Contribution Account shall come from amounts forfeited
from the Employer Contribution Accounts of those Participants who terminated
during the year. In the event that such forfeitures are insufficient to
restore the Account, the Company shall contribute the additional amounts
required.
9.5 Service of Less than 1,000 Hours.
--------------------------------
A Plan Year in which a Participant completes between 501 and 999
(inclusive) Hours of Service with an Employer shall not be treated either as
a One Year Break in Service or a year which a Year of Service is earned.
9.6 Vesting Schedule Amendments.
---------------------------
Upon an amendment changing the vesting schedule contained in
paragraph 9.2 hereof, the vested interest of an Employee who is a Participant
on the date such an amendment is adopted (or the date such an amendment is
effective, if later) shall not, immediately following the date of the
amendment, be less than his vested interest prior to such amendment. A
Participant who has completed three or more Years of Service may after such
an amendment elect during the vesting election period to have his vested
interest determined without regard to such an amendment. For purposes of
this paragraph the "vesting election period" begins on the date the vesting
schedule is amended, and ends 60 days following the later of:
(a) the date the amendment is adopted;
(b) the date the amendment is effective; or
(c) the date the Participant is given written notice of the amendment.
An election pursuant to this paragraph may be made only by an individual who
is a Participant at the time of such an election and shall be irrevocable.
Notwithstanding the foregoing, no election will be provided to a Participant
whose vested interest under the amendment is at all times equal to or greater
than his vested interest under the Plan without regard to the amendment.
27
<PAGE>
SECTION X - RETIREMENT
----------------------
10.1 Normal and Late Retirement.
--------------------------
Retirement for age shall occur if the Participant terminates his
service with the Employers on or after his attaining age 65. A Participant
may retire later than on the Participant's Normal Retirement Date, and in
such event (i) he shall continue to participate in the Employer's
contributions, forfeitures, and the benefits of the Trust as any other
Participant, and (ii) his retirement shall occur on the day his employment
with his Employer is terminated.
10.2 Disability.
----------
Retirement on account of permanent disability shall occur on the day
that the Employer determines, based upon an independent doctor's examination
and certificate, a Participant is under such physical or mental disability
that he is no longer capable of rendering satisfactory service to it. This
provision shall be applied in a nondiscriminatory manner to all Participants
similarly situated.
28
<PAGE>
SECTION XI - PAYMENT OF BENEFITS
--------------------------------
11.1 Form.
----
Upon retirement of a Participant for age or disability, or upon any
other termination of employment the vested portion of the Participant's
Employer Contribution Account shall be paid to the Participant at the
election of the Participant either in (a) cash or (b) Common Stock of the
Company (based upon fair market values on the date of distribution).
Balances representing fractional shares of Common Stock shall be distributed
in cash. The balance of a Participant's Individual Contribution Account
payable upon retirement for age or disability or upon any other termination
of employment shall be paid to the Participant in cash.
If the Participant elects a cash distribution of his Employer
Contribution Account, both his Employer Contribution Account and his
Individual Contribution Account may, at the election of the Participant, be
paid:
(a) in one lump sum distribution;
(b) in the case of an "eligible rollover distribution" as defined
in Code Section 401(a)(31)(C) after December 31, 1992, in a direct
transfer of all or a portion of the distribution to an "eligible
retirement plan" as defined in Code Section 401(a)(31)(D); provided,
however, that any such transfer is $200 or more; or
(c) in substantially equal annual or more frequent installments
paid over a reasonable period of time not to exceed the life
expectancy of the Participant, the joint life expectancy of the
Participant and his spouse, or the joint life expectancy of the
Participant and his designated Beneficiary as set forth in paragraph
11.3 below.
If the Participant who is terminating his employment has made individual
contributions which have not been credited to his account at the time of
distribution, such amounts shall be returned without interest. All
distributions required under this Section shall be determined and made in
accordance with the Income Tax Regulations under Code Section 401(a)(9),
including the minimum distribution incidental benefit requirement of Section
1.401(a)(9)-2 of the Regulations. Notwithstanding anything herein to the
contrary, the provisions of this paragraph and the other provisions of this
Section which are intended to reflect the requirements of Code Section
401(a)(9) shall override any contrary provisions elsewhere in this Plan.
11.2 Commencement Date.
-----------------
(a) If the vested portion of a Participant's vested account balances
does not exceed $3,500, a distribution (or a transfer after December 31,
1992) will commence on or before 90 days after the end of the Plan Year
in which his employment with all Employers and Affiliated Companies
terminates.
29
<PAGE>
(b) If the vested portion of a Participant's Account balances exceeds
$3,500, a distribution (or transfer after December 31, 1992) under the
above paragraph will commence within 90 days after the end of the Plan
Year in which occurs the later of the Participant's Normal Retirement
Date, the Participant's 10th anniversary of participation in the Plan,
or the date his employment with all Employers and Affiliated Companies
terminates. If requested by a Participant, a distribution (or transfer
after December 31, 1992) may commence on or before 90 days after the end
of the Plan Year in which the Participant's employment with all Employers
and Affiliated Companies terminates. If a distribution is one to which
sections 401(a)(11) and 417 of the Internal Revenue Code do not apply,
such distribution may commence less than 30 days after the notice required
under section 1.411(a)-11(c) of the Income Tax Regulations is given,
provided that:
(1) the plan administrator clearly informs the Participant that the
Participant has a right to a period of at least 30 days after
receiving the notice to consider the decision of whether or not to
elect a distribution (and, if applicable, a particular distribution
option), and
(2) the Participant, after receiving the notice, affirmatively
elects a distribution.
(c) Notwithstanding anything herein to the contrary, distributions must
commence no later than the April 1 of the calendar year following the
calendar year in which a Participant attains age 70-1/2.
(d) The distribution to any individual who retired, died or terminated
his service prior to January 1, 1989 shall be governed by the terms of the
Plan in effect on the date he terminated, died or retired.
11.3 Installment Distributions.
-------------------------
(a) If a Participant's benefit is to be distributed over (1) a period
not extending beyond the life expectancy of the Participant or the joint
life and last survivor expectancy of the Participant and the Participant's
designated Beneficiary or (2) a period not extending beyond the life
expectancy of the designated Beneficiary, the amount required to be
distributed for each calendar year, beginning with distributions for
the first calendar year for which distributions are required must at least
equal the quotient obtained by dividing the Participant's vested Account
balances at the beginning of the calendar year by the number of years in
the distribution period.
(b) For calendar years beginning before January 1, 1989, if the
Participant's spouse is not the designated Beneficiary, the method of
distribution selected must assure that at least 50% of the present value
of the amount available for distribution is paid within the life expectancy
of the Participant.
(c) For calendar years beginning after December 31, 1988, if the
Participant's spouse is not the designated Beneficiary, the amount to be
30
<PAGE>
distributed each year, beginning with distributions for the first
calendar year for which distributions are required shall not be less
than the quotient obtained by dividing the Participant's vested Account
balances at the beginning of the calendar year by the applicable divisor
determined from the table set forth in Q&A-4 of Section 1.401(a)(9)-2 of
the Income Tax Regulations.
(d) The minimum distribution for the calendar year during which the
Participant attains age 70-1/2 must be made no later than the April 1 of
the following calendar year. The minimum distribution for calendar years
beginning after a Participant attains age 70-1/2 must be made on or before
December 31 of that calendar year.
(e) For purposes of this Section, the term "life expectancy" or "joint
and last survivor expectancy" means the life expectancy or joint and last
survivor expectancy computed by use of the expected return multiples in
Tables V and VI of Section 1.72-9 of the Income Tax Regulations calculated
using the attained age of the Participant (or designated Beneficiary) as
of the Participant's (or designated Beneficiary's) birthday in the
applicable calendar year reduced by one for each calendar year which has
elapsed since the date life expectancy was first calculated. If life
expectancy is being recalculated, the applicable life expectancy shall be
the life expectancy as so recalculated. Unless otherwise elected by the
Participant (or spouse) by the time distributions are required to begin,
life expectancies shall be recalculated annually. Such election shall be
irrevocable as to the Participant (or spouse) and shall apply to all
subsequent years. The life expectancy of a nonspouse Beneficiary may not
be recalculated.
11.4 Death Benefits.
--------------
(a) If a Participant dies after distribution of his interest has begun,
the remaining portion of such interest will continue to be distributed at
least as rapidly as under the method of distribution being used prior to
the Participant's death.
(b) Upon the death of a Participant before a distribution or transfer of
his credit in the Trust has begun, the amount payable under paragraph 9.l
hereof shall be paid in Common Stock or in cash as described in paragraph
11.l hereof beginning on or before the ninetieth day next after his death
occurs, to the following person or persons in the order designated:
(1) to the Participant's surviving spouse, if any; provided in
the case of an "eligible rollover distribution" as defined in
Code Section 401(a)(31)(C) after December 31, 1992, in a direct
transfer of all or a portion of the distribution to an "eligible
retirement plan" as defined in Code Section 401(a)(31)(D);
provided, however, that any such transfer is $200 or more;
(2) if the Participant is not survived by a spouse, or if the
Participant is survived by a spouse but the spouse consents in
accordance with the procedure set forth below, to such
Beneficiary or Beneficiaries as the Participant designated in
writing upon such form or forms furnished by the Committee and
delivered to the Committee within his lifetime;
31
<PAGE>
(3) in the event a Beneficiary dies prior to the receipt of his
share of such account, the undisbursed portion of his share shall
be paid to such other Beneficiary or Beneficiaries, and in such
amount to each (if more than one), as said Participant shall have
designated. If more than one Beneficiary has been designated
without specifying the share to each, distribution shall be made
equally to such of the designated Beneficiaries as shall be
living; or
(4) if a Participant's spouse does not survive him and if no
Beneficiary has been named by said Participant, or if all of the
designated Beneficiaries predecease him or die while there is
still a credit in his accounts, such credit shall be paid in
a lump sum to his executors or administrators; provided that if
no executors or administrators are appointed within sixty (60)
days after his death, the Committee shall direct the Trustee to
pay such credit to such person or persons as the Committee in
its sole discretion may determine.
A Beneficiary designation filed with the Committee and bearing the latest
date of execution shall be conclusive upon all persons of the designation of
the Beneficiary or Beneficiaries named therein, provided however that no such
designation naming someone other than the Participant's spouse shall be
effective if the spouse survives the Participant unless the Participant's
spouse consents to such election, the consent acknowledges the effect of such
election, and the consent is witnessed by a Plan representative or a notary
public, or the Participant establishes to the satisfaction of the Plan
Administrator that the consent may not be obtained because there is no
spouse, because the spouse cannot be found, or because of other reasonable
excuse.
11.5 Deductions for Taxes and Expenses.
---------------------------------
Before making payment of the credit in the accounts of a deceased
Participant to the persons entitled thereto as designated by the Committee,
the Trustee may deduct from the credit such amount as in its sole discretion
it deems proper to protect itself against liability on account of all taxes
and penalties or other additions thereto and interest thereon, by whatever
government imposed, which may be levied or assessed upon or by reason of the
death of such deceased Participant and out of the amount so deducted may
discharge any such liability and shall pay the balance to the persons so
designated.
11.6 Payments to Minors.
------------------
During the minority or other legal disability of any person to whom
payments are to be made, such payments may be made in the discretion of the
Committee in any one or more of the following ways:
(a) directly to said person;
(b) to the legal guardian or conservator of said person;
32
<PAGE>
(c) to any relative of said person, to be expended by such
relative for the care, support, education, and maintenance of said
person; or
(d) directly expending the same for said purposes for the benefit
of said person.
The Trustee and the Committee shall not be required to see to the application
of any payments so made to any of said persons, but his or their receipts
shall be a full discharge to the Trustee and the Committee.
11.7 Missing Distributees.
--------------------
If the Committee notifies a Participant or a Beneficiary designated
in accordance with this Section in writing at his last known address that he
is entitled to benefits under the Plan and the Participant or Beneficiary
fails to claim his benefits within two calendar years after notification, his
benefits will be distributed to one or more of the Participant's or
Beneficiary's relatives by blood, adoption or marriage, as the Committee
decides. If the Committee cannot locate an appropriate relative within one
additional year, the benefit shall be forfeited, provided, however, that if
the Participant or an appropriate relative subsequently applies for the
benefit, the benefit shall be reinstated.
11.8 Special QDRO Distribution.
-------------------------
If the Committee receives a domestic relations order that meets the
requirements of Section 414(p) of the Code except that it provides for an
immediate distribution of the alternate payee's interest in the Participant's
Accounts, the Committee shall honor such an order as a Qualified Domestic
Relations Order within the meaning of Section 414(p) of the Code and make the
distribution in accordance with the order.
33
<PAGE>
SECTION XII - INCOME OR LOSS
----------------------------
12.1 Calculation.
-----------
The net income or net loss of each Fund for each semiannual
accounting period ending on an Allocation Date shall be the difference
between the fair market value of the Fund on the Allocation Date, as
determined by the Trustee (as provided in paragraph 12.2 below) and the sum
of the following:
(a) the total of all the account balances in the Fund of all
persons having credits in the Trust on said date;
(b) Employer contributions which have been received by the Trustee
but have not yet been credited to the account balances in the Fund;
and
(c) in the case of Fund B, amounts transferred out as forfeitures
and charged to account balances during the semiannual accounting
period ending on the Allocation Date under paragraph 9.2 hereof.
12.2 Valuation.
---------
Semiannually as of each Allocation Date, the Committee shall cause
the Company to obtain an appraisal of the Company Stock held in Fund B and
the Trustee shall determine and inform the Committee of, the fair market
value of Funds A, C, D, E, F, G, and O and any other assets held in Fund B.
The latter determination may be made in part or entirely by the Trustee, or
in part or entirely by such other persons, or with such other help, as the
Trustee in its sole discretion shall deem desirable. In determining the fair
market value of Fund assets, current market prices or quotations shall be
used for those assets for which they are available. As to all other assets,
the Trustee shall use such values as it deems fair; and its determination
shall be conclusive upon all persons.
34
<PAGE>
SECTION XIII - AMENDMENT
------------------------
13.1 Amendment.
---------
The Company shall have the power at any time and from time to time,
to amend this Plan by resolution of its Board of Directors; provided,
however, that no amendment under any circumstances may be adopted the effect
of which would be to vest or revest in an Employer any interest in the assets
of the plan, or any part thereof, or to change the rights, powers, or duties
of the Trustee without its consent, or to deprive any Participant of his then
vested interest if any, in this Plan.
35
<PAGE>
SECTION XIV - TERMINATION
-------------------------
14.1 Right to Terminate.
------------------
The Company reserves the right either with or without formal action
to terminate this Plan. Each Employer reserves the right to permanently
discontinue its contributions to the Trust. In the event that an Employer
permanently discontinues its contributions to the Trust, or that the Company
terminates this Plan, or that this plan is partially terminated under
operation of law, the accounts of the affected Participants shall be fully
vested and nonforfeitable.
14.2 Sale or Bankruptcy of Employer.
------------------------------
In the event an Employer shall be judicially declared bankrupt or
insolvent, or shall be dissolved, merged or consolidated, or in the event any
other person or corporation shall acquire an Employer or substantially all of
the assets of an Employer, the accounts of the Participants employed by such
Employer, shall be fully vested.
14.3 Distribution Upon Termination.
-----------------------------
Upon the termination of this Plan or the discontinuance of contributions
by an Employer, the Trustee may reserve such reasonable amounts as in its
sole discretion it shall deem necessary to provide for payment of:
(a) any of its expenses or taxes then or thereafter due or payable,
and
(b) any sums then or thereafter chargeable against the Trust Fund
for which it may be liable.
The credits in the accounts of Participants shall become 100% vested upon
termination of the Plan. As soon as practicable after the Plan is
terminated, the Trustee shall distribute the balance of the Trust Fund in
lump sum payments to the persons having credits in the Trust in the
proportion that the net credit in the accounts of each such person bears to
the total net credits in the accounts of all such persons. The Trustee may,
in its discretion, make distributions in cash or partially or wholly in kind.
At no time shall any part of the corpus or income of the Trust Fund be used
for, or diverted to, purposes other than for the exclusive benefit of the
Participants or their Beneficiaries.
14.4 Power of Trustee.
----------------
From and after the date of the termination of this Plan, and until
the final distribution of the Trust Fund, the Trustee shall continue to have
all the powers provided under the Plan and Trust as are necessary and
expedient for the orderly liquidation and distribution of the Trust Fund.
36
<PAGE>
14.5 Merger or Consolidation.
-----------------------
In the case of any merger or consolidation with, or transfer of
assets and liabilities to, any other plan, provisions shall be made so that
each Participant in the Plan on the date thereof (if the Plan then
terminated) would receive a benefit immediately after the merger,
consolidation or transfer which is equal to or greater than the benefit he
would have been entitled to receive immediately prior to the merger,
consolidation or transfer (if the Plan had then terminated). Affected
Participants will be notified of a termination or partial termination as
required by ERISA.
37
<PAGE>
SECTION XV - RESIGNATIONS - REPLACEMENTS
----------------------------------------
15.1 Resignation.
-----------
Any member of the Committee may resign and his resignation shall
become effective ten (10) days after notice thereof has been personally
delivered or sent by registered mail to the Secretary of the Company at the
principal office of the Company. The Employers by resolutions of a majority
of their Boards of Directors shall have the power to remove any member of the
Committee from office at any time.
15.2 Vacancy.
-------
The Boards of Directors of a majority of the Employers may fill any
vacancy in the membership of the Committee or appoint additional members to
the Committee. The Board of Directors of the Company shall give prompt
written notice of any such action to the other Committee members and the
Trustee. Any Committee members shall have the same power and authority as
their predecessors hereunder. While there is a vacancy in the membership of
the Committee, the remaining Committee members shall have the same powers and
authorities as the full Committee until the vacancy is filled.
38
<PAGE>
SECTION XVI - WITHDRAWALS
-------------------------
16.1 Withdrawals Permitted.
---------------------
A Participant may make withdrawals from his Individual Contribution
Account in accordance with the provision of this Section.
16.2 Withdrawals Without Penalty.
---------------------------
A Participant may withdraw in any Plan Year the sum of the following
without penalty:
(a) his own voluntary contributions made in prior years which were not
subject to the matching, i.e. contributions in excess of 6% of his
Compensation (5% for Plan Years ending prior to January 1, 1990); and
(b) the lesser of (i) $15,000 or (ii) 50% of the balance in his
Individual Contribution Account as of the semi-annual Allocation Date
immediately preceding the date the withdrawal request is received by the
Committee reduced by his own voluntary contributions in excess of 6% of
his Compensation (5% for Plan Years ending prior to January 1, 1990).
16.3 Penalty Withdrawals.
-------------------
If a Participant wishes to withdraw more than the amounts permitted
in paragraph 16.2, he may make such a withdrawal, but he will incur a
penalty. The penalty shall be that he may not again contribute to the Plan
until the January l which is coincident with or immediately following the one
year anniversary of the effective date of the withdrawal which creates the
penalty. In addition, the Participant who incurs a penalty will not receive
an Employer Matching Contribution for the Plan Year in which the penalty
period ends.
16.4 Prohibited Withdrawals.
----------------------
A Participant may not withdraw contributions made during the year of
withdrawal nor may he withdraw any amounts from his Employer Contribution
Accounts.
16.5 Requests for Withdrawals.
------------------------
All requests for withdrawals must be made in writing to the
Committee. Withdrawals shall be paid in cash. Payments shall be made within
ninety (90) days following the first January l or July l which follows the
date the request for withdrawal is received by the Committee. The withdrawal
shall be effective as of said January 1 or July 1.
39
<PAGE>
16.6 Limitation on Withdrawals from Fund O.
-------------------------------------
Notwithstanding the foregoing, if a withdrawal is requested by a
Participant who has all or a portion of his Individual Contribution Account
invested in Fund O, the payment of the portion of his Individual Contribution
Account invested in Fund O may be deferred until the one year anniversary of
the January 1 or July 1 as of which the payment would have been made pursuant
to Paragraph 16.5 hereof but for this paragraph. If in the Committee's sole
discretion an additional delay is necessary to permit a fair and orderly
liquidation of all or a portion of the assets held in Fund O, the payment can
be deferred an additional period of time not to exceed one year.
40
<PAGE>
SECTION XVII - ADDITIONAL EMPLOYERS
-----------------------------------
17.1 Adoption by Subsidiaries.
------------------------
Any Subsidiary (as defined in subparagraph 2.2(w) hereof) which is
authorized by the Company to do so, may adopt this Plan by resolution of its
Board of Directors.
41
<PAGE>
SECTION XVIII - MAXIMUM ADDITIONS
---------------------------------
18.1 No Other Plans.
--------------
If an Employer (as defined in subparagraph 18.4(d) hereof) does not
maintain any other qualified plan in addition to this Plan, the following
limitations shall apply:
(a) The amount of the Annual Addition which may be allocated under
this Plan to any Participant's Account during any Plan Year shall
not exceed the Maximum Permissible Amount.
(b) If the Annual Addition under this Plan on behalf of a
Participant is to be reduced as of any allocation date as a result
of subparagraph (a), such reduction shall be disposed of as follows:
(1) first, any Employee contributions made pursuant to paragraph
4.1 hereof, to the extent the return would reduce the excess
amount, shall be returned to the Participant;
(2) second, such reduction shall be accomplished by reallocating
Company contributions made pursuant to paragraph 5.1 hereof and
forfeitures, subject to the limitations of subparagraph (a)
hereof, to the Company Contribution Accounts of the remaining
Participants. To the extent that any Company Contributions or
forfeitures cannot be reallocated to a Participant's Company
Contribution Account because of the limitations of subparagraph
(a), they shall be placed in a suspense account for reallocation
in later Plan Years.
18.2 Other Defined Contribution Plans.
--------------------------------
If an Employer maintains one or more other defined contribution plans
in addition to this Plan, the following limitations shall apply:
(a) The amount of Annual Addition which may be allocated under this
Plan to any Participant's Account as of any allocation date shall
not exceed the Maximum Permissible Amount (based upon Recognized
Compensation up to such allocation date) reduced by the sum of any
allocations of Annual Additions previously made to the Participant's
Accounts under this Plan and any other such plans maintained by the
Employer within the Plan Year.
(b) If a Participant's Annual Addition under this Plan and all such
other plans results in an Excess Amount, such Excess Amount shall be
deemed to consist of the amounts last allocated.
(c) If an allocation date of this Plan coincides with an allocation
date of any other plan described in subparagraph (a) hereof, the
amount of Annual Additions to be allocated on behalf of a
Participant under this Plan as of such date shall be an amount to be
allocated under this Plan without regard to this Section multiplied
by the lesser of 1 or a fraction, the numerator of which is the
amount described in subparagraph (a) during the Plan Year and the
denominator of which is the amount that would otherwise be allocated
on this allocation date under all plans without regard to this
Section.
42
<PAGE>
(d) Any Excess Amount attributed to this Plan shall be disposed of
as provided in paragraph 18.1(b).
18.3 Other Defined Benefit Plans.
---------------------------
If an Employer maintains one or more defined benefit plans in
addition to this Plan, then notwithstanding any other provisions of the Plan
the following limitations shall apply:
(a) The sum of a Participant's Defined Benefit Plan Fraction and
his Defined Contribution Plan Fraction shall not exceed 1.0 for any
Plan Year.
(b) If in any Plan Year the sum of a Participant's Defined Benefit
Plan Fraction and Defined Contribution Plan Fraction would otherwise
exceed 1.0, the Annual Additions under this Plan shall be reduced in
the manner set forth in paragraph 18.1(b) to the extent necessary to
comply with subparagraph (a) hereof.
18.4 Definitions.
-----------
The terms used in this Section XVIII shall have the following definitions:
(a) "Defined Benefit Plan Fraction" means a fraction, the numerator
of which is the Projected Annual Benefit payable to a Participant
under all defined benefit plans sponsored by the Employer as of the
close of the current Plan Year and the denominator of which is the
lesser of
(1) 1.25 multiplied by the dollar limitation in effect under
Section 415(b)(1)(A) of the Code for such year; or
(2) 1.4 multiplied by the compensation limitation in effect
under Section 415(b)(1)(B) of the Code for such year.
(b) "Defined Contribution Plan Fraction" means a fraction, the
numerator of which is the aggregate amount of the Annual Additions
made to a Participant's accounts under this Plan or any other defined
contribution plans sponsored by the Employer as of the close of the
current Plan Year and the denominator of which is the sum of the
lesser of (1) or (2) for such year and for each prior Year of Service
with the Employer (regardless of whether any such defined contribution
plan was in existence during those years) where:
(1) is the product of 1.25 multiplied by the dollar limitation
in effect under Section 415(c)(1)(A) of the Internal Revenue Code
for such year (determined without regard to Section 415(c)(6) of
the Code); and
43
<PAGE>
(2) is the product of 1.4 multiplied by the amount which may
be taken into account under Section 415(c)(1)(B) of the Code
(or Section 415(c)(7) or (8), if applicable);
provided, however, that the Committee may elect that the account for
each Participant for all years ending before January 1, 1983, under
(i) and (ii) above shall be determined pursuant to the special
transitional rule provided in Section 415(e)(6) of the Code.
(c) "Maximum Permissible Amount" means with respect to any
Participant for a Plan Year the lesser of:
(1) $30,000, or if greater, one-fourth (1/4) of the dollar
limitation set forth in Section 415(b)(1)(A) of the Code; or
(2) twenty-five percent (25%) of his Recognized Compensation
for the Plan Year.
(d) "Employer" means the Employers, as defined in subparagraph
2.2(p) hereof, plus any Affiliated Company, as defined in subpara-
graph 2.2(a) hereof.
(e) "Projected Annual Benefit" means the annual benefit to which a
Participant in a defined benefit plan would be entitled under the
terms of the plan based upon the following assumptions:
(1) the Participant will continue employment until reaching
normal retirement age as determined under the terms of the plan
(or current age, if later);
(2) the Participant's compensation will remain the same until
the Participant attains normal retirement age; and
(3) all other factors used to determine benefits under the plan
for the Plan Year under consideration will remain constant for
all future Plan Years.
(f) "Recognized Compensation" means compensation as defined in Code
Section 415(c)(3) and the Regulations thereunder.
44
<PAGE>
SECTION XIX - ROLLOVERS
-----------------------
19.1 Rollover.
--------
A Participant may with the approval of the Committee transfer to this
Plan all or part of a distribution received from another plan qualified under
Section 401(a) or 403(a) of the Code (hereinafter the "Other Plan") provided:
(a) the transfer occurs on or before the sixtieth day following
his receipt of the distribution from the Other Plan or, if such
distribution had previously been deposited in an Individual
Retirement Account (as defined in Section 408 of the Code), the
transfer occurs on or before the sixtieth day following distribution
from the Individual Retirement Account;
(b) no part of the amount being transferred constitutes any amounts
considered contributed by him to the Other Plan within the meaning of
Section 402(e)(4)(D)(i) of the Code;
(c) the distribution from the Other Plan is on account of the
termination of the Other Plan, or permanent discontinuance of
contributions to the Other Plan (if it is a profit-sharing or stock
bonus plan), or the distribution otherwise qualifies as a lump sum
distribution within the meaning of Section 402(e)(4)(A) of the Code
without reference to Section 402(e)(4)(B) of the Code;
(d) no part of the amount being transferred was attributable to
contributions made on behalf of the Participant while he was a key
employee in a top heavy plan. (See definitions of "key employee" and
"top-heavy plan" in Section XX hereof.)
An Employee may make a rollover pursuant to this Section although he has not
yet met the Plan's age and service requirements for participation in the
Plan.
19.2 Plan to Plan Transfer.
---------------------
In addition to a transfer pursuant to paragraph 19.1 hereof, a
participant may with the approval of the Committee transfer directly to this
Plan any amounts held for him under any other plan qualified under Section
401(a) or 403(a) of the Code.
19.3 Procedures.
----------
The Committee shall develop such procedures, and may require such
information from a Participant desiring to make a transfer pursuant to this
Section as it deems necessary or desirable to determine that the proposed
transfer will meet the requirements of this Section. Upon approval by the
Committee, the amount being transferred shall be deposited in the Trust and
allocated to the Participant's Rollover Account. The Participant will be
fully vested in the balance in his Rollover Account.
45
<PAGE>
SECTION XX - TOP-HEAVY RESTRICTIONS
-----------------------------------
20.1 When Applicable.
---------------
(a) The provisions of this Section shall become effective in any Plan
Year beginning after December 31, 1983 in which the Plan is a Top-Heavy
Plan. The Plan shall be a Top-Heavy Plan if with respect to a Plan Year
the Top-Heavy Ratio exceeds sixty percent (60%) and the Plan is not part
of a required or permissive aggregation group of plans.
(b) If this Plan is a part of a required aggregation group of plans but
not part of a permissive aggregation group and the Top-Heavy Ratio for
the group of plans exceeds sixty percent (60%),the Plan will be Top-Heavy.
If this Plan is a part of a required aggregation group and part of a
permissive aggregation group of plans and the Top-Heavy Ratio for the
permissive aggregation group exceeds sixty percent (60%), the Plan will
be Top-Heavy.
20.2 Top Heavy Ratio.
---------------
For purposes of this Section, Top-Heavy Ratio shall mean the following:
(a) If the Company or an Affiliated Company does not maintain a defined
benefit plan that has or has had accrued benefits during the 5-year period
ending on the Determination Date, the Top-Heavy Ratio is a fraction
calculated as of the Determination Date, the numerator of which is the sum
of the account balances for all Key Employees under this Plan and all
other defined contribution plans maintained by the Company or an Affiliated
Company (including account balances distributed in the five-year period
ending on the Determination Date), and the denominator of which is the sum
of all account balances under this Plan and such other plans on that date.
Both the numerator and the denominator are adjusted to reflect any
contributions that are due but unpaid as of the Determination Date.
(b) If the Company or an Affiliated Company maintains one or more defined
benefit plans that has or has had accrued benefits during the 5-year period
ending on the Determination Date, the Top-Heavy Ratio is a fraction, the
numerator of which is the sum of account balances for all Key Employees
under this Plan and all other defined contribution plans sponsored by the
Company or an Affiliated Company plus the present value of accrued benefits
for Key Employees under the defined benefit plans sponsored by the Company
or an Affiliated Company which cover a Key Employee. The denominator is
the sum of the account balances under this Plan and such other defined
contribution plans sponsored by the Company or an Affiliated Company plus
the present value of accrued benefits under the defined benefit plans for
all Participants. Both the numerator and denominator of the Top-Heavy
Ratio are adjusted for any distribution made in the five-year period ending
on the Determination Date and any contribution due but unpaid as of the
Determination Date.
For purposes of (a) and (b) above, the value of account balances and the
present value of accrued benefits will be determined as of the Allocation
Date that falls on the Determination Date. The account balances and accrued
benefits of a Participant will be disregarded if: (i) the Participant is not
46
<PAGE>
a Key Employee but was a Key Employee in a prior year or (ii) the Participant
has not been credited with an Hour of Service for the Company or an
Affiliated Company at any time during the five (5) year period ending on the
Determination Date. The calculation of the Top-Heavy Ratio, and the extent
to which distributions, rollovers, and transfers are taken into account will
be made in accordance with Section 416 of the Code and the regulations
thereunder. When aggregating plans, the value of account balances and
accrued benefits will be calculated with reference to the Determination Dates
that fall within the same calendar year.
20.3 Definitions.
-----------
The terms used in this Section, shall have the following meanings:
(a) "Determination Date" with respect to any Plan Year shall mean
the last day of the preceding Plan Year, or in the case of the
first Plan Year, the last day of such Plan Year.
(b) "Key Employee" shall mean each Employee or former Employee
(and the Beneficiaries of such Employee) who at any time during the
determination period was:
(1) an officer of the Company or an Affiliated Company having
an annual Recognized Compensation in excess of 50% of the
dollar limitation in effect under Code Section 415(b)(1)(A)
for such year, provided, however, that the maximum number of
officers is limited to the lesser of:
a. fifty (50); or
b. the greater of three (3) Employees or ten percent (10%)
of all Employees.
(2) an owner (or considered an owner under Code Section 318) of
more than a 1/2% interest as well as one of the 10 largest
interests in the Company or an Affiliated Company if such
individual's Recognized Compensation exceeds the dollar
limitation under Code Section 415(c)(1)(A) for such year;
(3) a 5% or more owner of an Employer; or
(4) a 1% or more owner of an Employer who has an annual
Recognized Compensation of more than $150,000.
The determination period of the Plan is the Plan Year containing the
Determination Date and the four preceding Plan Years. The deter-
mination of who is a Key Employee will be made in accordance with
Section 416(i)(1) of the Code and the regulations thereunder.
(c) "Permissive Aggregation Group" shall mean the required
aggregation group of plans plus any other plan or plans of the
47
<PAGE>
Company which, when considered as a group with the required
aggregation group, would continue to satisfy the requirements of
Sections 401(a)(4) and 410 of the Code.
(d) "Recognized Compensation" shall mean compensation as defined
in Code Section 415(c)(3), including amounts that are contributed
pursuant to a salary reduction agreement and which are excludible
from the Employee's gross income under Code Sections 125,
402(a)(8), 401(h), or 403(b). Recognized Compensation shall be
limited to $200,000 ($150,000 for plan years beginning on or after
January 1, 1993), as adjusted by the Secretary of the Treasury to
include cost-of-living increases under Code Sections 401(a)(17) and
415(d).
(e) "Required Aggregation Group" shall mean:
(1) each qualified plan of an Employer in which at least one
Key Employee participates, and
(2) any other qualified plan of an Employer which enables a
plan described in (1) to meet the requirements of Sections
401(a)(4) and 410 of the Code.
20.4 Top Heavy Limitations.
---------------------
For any Plan Year in which the Plan is a Top-Heavy Plan, the limitations
of this Section shall apply to this Plan:
(a) (1) Except as otherwise provided in (2) below, in allocating
Employer Contributions pursuant to paragraphs 7.6 through 7.8
hereof, the provisions of those paragraphs and paragraph 5.1
limiting the allocation to those Participants who completed 1,000
or more Hours of Service during the Plan Year shall be inoperative
until each Participant receives a share of the Company Contribution
equal to three percent (3%) of his Recognized Compensation. Any
excess shall then be allocated on the basis provided in paragraphs
7.6 through 7.8 hereof.
(2) The provisions of subparagraph (1) above shall not apply to any
Participant to the extent that the Participant is covered under any
other plan or plans of the Company and the minimum allocation or
benefit requirement will be met in the other plan or plans.
(b) Subparagraphs 18.4(a) and (b) hereof shall be read by substituting
"1.00" for "1.25" wherever it appears therein unless:
(1) the Plan provides a minimum benefit equal to that specified in
subparagraph (a) above, with "four percent (4%)" being substituted
for "three percent (3%)" wherever it appears therein; and
48
<PAGE>
(2) the Plan is not Top-Heavy within the meaning of paragraph 20.1
with "ninety percent (90%)" being substituted for "sixty percent
(60%)," wherever it appears therein.
(c) For any Plan Year in which the Plan is a Top-Heavy Plan, paragraph
9.2(b) shall be read by substituting the following table for the table that
otherwise appears in that paragraph:
YEARS OF SERVICE VESTED PERCENTAGE
---------------- -----------------
Less than 2 0%
2 but less than 3 20%
3 but less than 4 40%
4 but less than 5 60%
5 but less than 6 80%
6 or more 100%
49
<PAGE>
SECTION XXI - SUPPLEMENTAL PROVISIONS RELATING
TO EMPLOYEES OF MINNESOTA TITLE FINANCIAL CORPORATION
-----------------------------------------------------
21.1 Applicability of this Section.
-----------------------------
Notwithstanding any of the provisions of this Plan which may be in
conflict with this Section XXI, the following provisions shall apply to all
employees of Minnesota Title Financial Corporation and all wholly owned
subsidiaries (hereinafter collectively referred to as "Minnesota Title").
21.2 Eligibility and Credit for Service.
----------------------------------
Prior to January 1, 1980, Minnesota Title Financial Corporation
maintained the Minnesota Title Financial Corporation Profit Sharing Plan
(hereinafter referred to as the "Minnesota Title Plan"). All participants in
the Minnesota Title Plan (hereinafter referred to as "Minnesota Title Plan
Participants") shall become participants in this Plan as of January 1, 1980.
All other employees of Minnesota Title shall become eligible to participate
in this Plan when they meet the eligibility requirements set forth in Section
III hereof. Credit for Years of Service shall be given for service with
Minnesota Title before January 1, 1980 using the definition of Service set
forth in this Plan, provided that no changes shall be made in the eligibility
and vesting rules applicable to Minnesota Title Plan Participants and
Minnesota Title employees that will affect their participation or vesting in
the Minnesota Title Plan prior to January 1, 1980.
21.3 Treatment of Special Accounts.
-----------------------------
Presently the types of accounts maintained for each employee in the
Minnesota Title Plan include Segregated Accounts, Regular Accounts, and
Special Accounts. Each Minnesota Title Plan Participant is being given the
option of withdrawing the balance in his Special Account as of December 31,
1979. If the Minnesota Title Plan Participant does not withdraw the balance
in his Special Account, it will be transferred to this Plan, invested in Fund
A and credited to his Individual Contribution Account so that he will
continue to have a fully vested interest in said balance. After January 1,
1980, the amount credited to the Individual Contribution Account may be
withdrawn pursuant to the provisions of Section XVI hereof as if it were a
voluntary employee contribution in excess of 5% (6% after December 31, 1989)
of Compensation. Any future income earned on said Account shall be subject
to withdrawal in accordance with Section XVI hereof.
21.4 Treatment of Regular Accounts.
-----------------------------
The balance in each Minnesota Title Plan Participant's Regular
Account shall be credited to the individual Employer Contribution account
under this Plan and invested in Fund B hereof. A Minnesota Title Plan
Participant shall be vested in his Employer Contribution Account in
accordance with the vesting schedule set forth in paragraph 9.2 hereof which
is at least equal to and in some cases more favorable than the vesting
schedule set forth in the Minnesota Title Plan. There are separate regular
accounts established for Minnesota Title Plan Participants who were
50
<PAGE>
participants in the title Insurance Company of the South Employees Profit
Sharing Agreement and Trust. The Minnesota Title Plan Participants who have
such accounts shall continue to be vested in those accounts in the same
percentage as they were on December 31, 1979. Vesting thereafter shall
continue at the rate of 10% per Year of Service.
21.5 Segregated Accounts.
-------------------
Balances in each Minnesota Title Plan Participant's Segregated
Account shall continue to be administered and invested as set forth in
Section 11.7 of the Minnesota Title Plan provided that no future elections
can be made to transfer funds to a new Segregated Account and that no
additional Employer contributions shall be allocated or transferred to any
such existing Accounts after December 31, 1979.
51
<PAGE>
SECTION XXII - MISCELLANEOUS
----------------------------
22.1 Fiduciary Duties.
----------------
In discharging their respective duties, the Trustee and the Committee
shall act solely in the interests of the Participants and Beneficiaries of
the Plan with the care, skill, prudence, and diligence under the
circumstances then prevailing that a prudent man acting in a like capacity
and familiar with such matters would use in the conduct of an enterprise of
a like character and with like aims.
22.2 Assignment of Accounts Prohibited.
---------------------------------
No money or property in the hands of the Trustee and no benefits
under this Plan or interest in the Trust shall be pledged, assigned,
transferred, sold, or in any manner whatsoever anticipated, charged, or
encumbered by a Participant or his Beneficiaries, or in any manner be liable
in the possession of the trustee for the debts, contracts, obligations or
engagements of any person having an interest in the trust Fund, voluntary or
involuntary, or for any claims, legal or equitable, against any such person.
22.3 Evidence of Actions.
-------------------
Any decision of an Employer required in carrying out this Plan shall
be evidenced by a resolution of its Board of Directors certified over the
signature of its Secretary or Assistant Secretary under the corporate seal.
22.4 Restrictions Remain.
-------------------
If this Plan ceases to be a leveraged employee stock ownership plan,
qualifying employer securities acquired with the proceeds of a loan made
pursuant to paragraph 8.5 will continue after the loan is paid to be subject
to the restrictions contained in the Treasury Regulations governing leveraged
employee stock ownership plans concerning certain puts, calls and other
options.
22.5 No Contract of Employment.
-------------------------
Participation in this Plan shall not give any Participant the right
to be retained in the service of an Employer, or any right or interest in
this Plan other than as herein provided.
22.6 No Discrimination.
-----------------
Where any action is to be taken by an Employer, the Committee or
Trustee hereunder, it will be taken in a manner that will not discriminate in
favor of stockholders, officers or highly-paid employees.
52
<PAGE>
22.7 Controlling Law.
---------------
To the extent not superseded by ERISA, this Plan shall be construed,
enforced and administered according to the laws of the State of Illinois.
22.8 Named Fiduciaries.
-----------------
The "Named Fiduciaries" of this Plan are (1) the Employers, (2) the
Committee, (3) the Trustee and (4) any Investment Manager appointed under the
Trust. The Named Fiduciaries shall have only those specific powers, duties,
responsibilities, and obligations as are specifically given them under this
Agreement. No Named Fiduciary guarantees the Trust Fund in any manner
against investment loss or depreciation in asset value. The Company shall be
the Plan Administrator as defined in Section 414(g) of the Code.
53
<PAGE>
SECTION XXIII - DIRECTED INVESTMENT OF PARTICIPANTS' CONTRIBUTIONS
------------------------------------------------------------------
23.1 Two Funds.
---------
The Committee and the Trustee shall establish two funds, Fund A and
Fund O as set forth in Paragraph 8.1 hereof. The Trustee's investment
authority is more fully described in Sections Three and Four of the Trust.
The income or loss of each Fund shall be credited to or charged against the
accounts of Participants in the particular Fund. Each Participant shall
elect on a form furnished by the Committee what percentage of his individual
contribution made pursuant to Paragraph 4.1 hereof shall be invested in Funds
A and O.
23.2 Change of Investment Election.
-----------------------------
A Participant may elect to change his investment election between the
two Funds for future allocations to his account subject to the following:
(a) the election must be in whole percentages;
(b) the election shall be effective only as of the first day of the
Semi-annual Accounting Period following the Committee's receipt of a
completed application; and
(c) to be effective on the Semi-annual Accounting Period, the election
must be made on a form provided by the Committee and be received by
the Committee at least 20 days prior to such effective date.
23.3 Election to Transfer and Timing.
-------------------------------
A Participant (but not a Former Participant) may, during the year,
elect to have a percentage of his account in Fund A transferred to and
invested in Fund O. An election under this Section shall be made by a
Participant executing and delivering to the Committee written notice thereof
on a form furnished by the Committee. An election can be made during the
period January 1 through May 31 inclusive ("1st Election Period") or July 1
through November 30 inclusive ("2nd Election Period.") An election received
by the Committee during the 1st Election Period shall be effective and
transfer made as of the following July 1 based upon the Participant's
adjusted account balance on January 1 of the 1st Election Period. An
election received by the Committee during the 2nd Election Period shall be
effective and transfer made as of the following January 1 based upon the
Participant's adjusted account balance as of July 1 of the 2nd Election
Period. Any election received by the Committee between June 1 and June 30
inclusive or between December 1 and December 31 inclusive shall be void and
of no effect.
23.4 Amount Subject to Being Transferred.
-----------------------------------
The election shall specify the amount to be transferred as a whole
number multiple of $100 and may not exceed the Participant's adjusted account
balance in Fund A on January 1 (for the 1st Election Period) or July 1 (for
the 2nd Election Period.) For the purposes of this Section "adjusted account
54
<PAGE>
balance in Fund A on January 1 . . . or July 1" shall mean the Participant's
Individual Contribution Account balance in Fund A on January 1 or July 1
reduced by any withdrawals made during the Election Period and adjusted for
transfers to Fund O made as of January 1 or July 1 of the Election Period as
a result of a prior election.
23.5 Effecting the Election to Transfer.
----------------------------------
The Committee shall direct the Trustee to transfer on January 1 (for
the 2nd Election Period) or July 1 (for the 1st Election Period) following
the election, the amount from Fund A to Fund O as is required to comply with
the elections timely filed with the Committee. The amount to be transferred
will not be affected by earnings, losses, Company contributions or
forfeitures allocated as of June 30 (for the 1st Election Period) or December
31 (for the 2nd Election Period) immediately following the election. The
amount transferred to Fund O will be charged against the Participant's
account balance in Fund A on January 1 or July 1 of the year following the
election.
23.6 Election as to Future Contributions.
-----------------------------------
An election filed with the Committee pursuant to paragraphs 23.3
through 23.5, hereof will not affect the future contributions of the
Participant. Future contributions will be deposited and invested in
accordance with the election under paragraph 23.1 hereof unless the
Participant makes a change of election in accordance with Paragraph 23.2
hereof
23.7 Irrevocable.
-----------
Once a transfer to Fund O is made, the election is irrevocable.
Assets cannot be transferred from Fund O to Fund A. The Participant may
revoke the election as to the deposit of future contributions at any time
upon thirty days' written notice to the Committee. Upon receipt of such
notice, the Committee shall direct the Trustee to take the appropriate action
to effect the Participant's election. The Committee shall prepare the
necessary forms and procedures to effect the foregoing provisions of this
Section.
55
<PAGE>
SECTION XXIV - DIRECTED INVESTMENT OF EMPLOYER
CONTRIBUTIONS -- AGE 55 DIVERSIFICATION
---------------------------------------
24.1 Eligibility.
-----------
When a Participant attains age 55 and has completed 10 Years of
Participation in the Plan, he shall be eligible to direct the investment of
a portion of Company Stock held in his accounts in accordance with the
provisions of this Section, provided however if on the December 31
immediately preceding the Qualified Election Period (as defined in 24.2(b)
below) the value of the Company Stock held in the Participant's accounts in
excess of the value of the Company Stock held in the Participant's accounts
on December 31, 1986, adjusted for changes in fair market value since said
date, is less than $500 he shall not be eligible for a Qualified Election.
24.2 Definitions.
-----------
(a) "Qualified Participant" shall mean a Participant who has attained
age 55 and has completed 10 Years of Participation in the Plan.
(b) "Qualified Election Period" shall mean the 5 Plan Year period
beginning with the Plan Year after the Plan Year in which the
Participant first becomes a Qualified Participant.
(c) "Qualified Election" shall mean an election by a Qualified
Participant to transfer part or all of his Qualified Portion to one or
more of Funds E, F or G.
(d) "Qualified Portion" shall mean for each of the first 4 Plan Years
in the Election Period:
(1) 25% of the total value of the Participant's Company Stock
held in his accounts as of the December 31 immediately prior to
the January 1 that begins the 90 day election period in excess
of the total value of the Company Stock held in the Participant's
accounts on January 1, 1986, adjusted for changes in fair market
value since said date, reduced by
(2) the value of Fund B previously transferred pursuant to a
Qualified Election.
For the last Plan Year in the Election Period "Qualified Portion" has the
same meaning except that 25% is changed to 50% in clause (1) of this
subparagraph.
24.3 Timing of the Election.
----------------------
To make a Qualified Election, a Qualified Participant must make an
election on a form furnished by the Committee within the 90 day period after
the close of one or more of the Plan Years within the Qualified Election
Period.
56
<PAGE>
24.4 Diversification.
---------------
A Qualified Participant may direct the investment of the Qualified
Portion among Accounts E, F, and G in such percentages as he elects.
24.5 Actual Transfer.
---------------
The Committee shall direct the Trustee to make the transfers to Funds
E, F, and G in accordance with the Qualified Elections timely received by it.
Such transfers shall be effected no later than 90 days after the last day
during which the Qualified Election can be made.
IN WITNESS WHEREOF, the Employers have caused this plan to be signed
by their duly qualified officers and caused their corporate seals to be
hereunto affixed on this First day of December, 1994.
OLD REPUBLIC INTERNATIONAL CORPORATION
By:________/s/ A. C. Zucaro___________
President
ATTEST:
______/s/ Spencer LeRoy, III______
Secretary
57
<PAGE>
OLD REPUBLIC INTERNATIONAL CORPORATION
EMPLOYEES SAVINGS AND STOCK OWNERSHIP PLAN
SCHEDULE A
LIST OF EMPLOYERS
Bitco Corporation
Brummel Bros., Inc.
Old Republic Union Company
Chicago Underwriting Group, Inc.
Employers General Insurance Group, Inc.
Great West Casualty Company
Insured Credit Services, Inc., a Delaware corporation, and its subsidiaries
International Business & Mercantile REassurance Company
J. Huell Briscoe and Associates, Inc.
Old Republic National Title, a Minnesota corporation, and all of its wholly
owned subsidiaries as of January 1, 1980
Old Republic Asset Management Corporation
Old Republic Dealers Service Corporation
Old Republic General Services, Inc.
Old Republic Home Protection Company
Old Republic Insurance Company
Old Republic Life Insurance Company
Old Republic Life Insurance Company of New York
Old Republic Minnehoma Insurance Company
Old Republic RE, Inc.
58
<PAGE>
Old Republic Risk Management, Inc.
Old Republic Standard Underwriters
Old Republic Surety Company
ORDESCO, Inc.
Phoenix Aviation Managers, Inc.
RMIC Corporation
Old Republic Western Title Company
59
<PAGE>
SCHEDULE B
Employer Matching Contribution For 1989
Percentage of Percentage increase in Average Operating Earnings Per Share for
Recognized the Most Recent 5 Years ending with the Calculation Year over
Compensation the Average of the 5 Years ending with the Plan Year prior to
Contributed the Calculation Year
Less 6 to 7 to 8 to 9 to 10 to 12 to More
than 6% 6.99% 7.99% 8.99% 9.99% 11.99% 20% than 20%
1.00%* 50%** 65%** 75%** 80%** 90%** 95%** 100%** 125%**
1.01% to 2.00% 48% 63% 73% 78% 88% 93% 98% 123%
2.01% to 3.00% 46% 61% 71% 76% 86% 91% 96% 121%
3.01% to 4.00% 44% 59% 69% 74% 84% 89% 94% 119%
4.01% to 5.00% 42% 57% 67% 72% 82% 87% 92% 117%
5.01% to 6.00% 40% 55% 65% 70% 80% 85% 90% 115%
6.01% to 15.00% No additional matching contribution
*For Plan Years prior to 1990, this 1% is contributed by the Employer
pursuant to paragraph 5.1.
**Employer Contributions as a percentage of Employee's contribution.
60
OLD REPUBLIC INTERNATIONAL CORPORATION
AMENDED AND RESTATED
KEY EMPLOYEES PERFORMANCE RECOGNITION PLAN
-------------------------------------------------------------------------
ARTICLE ONE
-----------
PURPOSE AND EFFECTIVE DATE
--------------------------
1.1 The purpose of this Plan is to further the long term growth in
earnings of Old Republic International Corporation by offering long term
incentives in addition to current compensation to those officers and key
employees of Old Republic International Corporation and its subsidiaries who
have been or are expected to be largely responsible for such growth.
1.2 This Plan is effective as of January 1, 1978.
ARTICLE TWO
-----------
2.1 "Plan" shall mean this Old Republic International Corporation Key
Employees Performance Recognition Plan.
2.2 "Company" shall mean Old Republic International Corporation, a
corporation organized under the laws of the State of Delaware.
2.3 "Employer" and "Employers" shall mean the Company and each other
corporation or organization which is wholly or partially owned by the Company,
either directly or indirectly, and is designated by the Committee as an
Employer under this Plan. As of the effective date of this Plan the Employers
other than the Company are:
Actuarial Risk Services, Inc.
American Treaty Management Corporation
Brummel Brothers, Inc.
J. Huell Briscoe & Associates, Inc.
Old Republic Asset Management Corporation
Old Republic General Services, Inc.
Old Republic Insurance Company
Old Republic Insured Credit Services, Inc.
Old Republic International Corporation
Old Republic Life Insurance Company
Old Republic Life Insurance Company of New York
Old Republic Marketing, Inc.
Old Republic RE, Inc.
Old Republic Title Holding Company, Inc.
Old Republic Union Insurance Company
Republic Mortgage Insurance Company
Sierra Reinsurance Services, Inc.
2.4 "Chief Executive Officer" shall mean the chief executive officer
of the Company. "OCEO" shall mean the Office of the Chief Executive Officer
of the Company. The members of the OCEO are designated by the Board of
Directors.
-1-
<PAGE>
2.5 "Committee" shall mean the Compensation Committee of the Board of
Directors of the Company.
2.6 "Employee" shall mean any person who is employed by an Employer on
a full-time basis and who is compensated for such employment by a regular
salary. Employee shall include officers of an Employer but shall not
include directors who are not otherwise officers or employees.
2.7 "Eligible Employee" shall mean an Employee who pursuant to Section
5.1 hereof has been selected to share in the allocation of the Performance
Recognition Pool for any given year.
2.8 "Year of Service" shall mean each year of continuous employment
with an Employer after first being designated as a Eligible Employee pursuant
to Section 5.1 hereof.
2.9 "Account" shall mean with respect to any Employee, the record of:
(a) credits in connection with the allocations, if any, credited to such
account pursuant to Article Five of the Plan,
(b) payments to him under the Plan pursuant to Article Six of the Plan,
(c) forfeitures, if any, pursuant to Article Seven of the Plan, and
(d) credits transferred from the Plan to a comparable plan of any
subsidiary or affiliate of the Employer by agreement between such
subsidiary or affiliate and the Employer.
2.10 "Calculation Year" shall mean the Company s fiscal year immediately
preceding the year for which the Performance Recognition Pool is being
calculated.
If there is an operating loss in the year prior to the Calculation Year,
the prior year to be used in the following definitions and for Section 4.1
calculations is the first year prior to the Calculation Year in which there
was an operating profit.
-2-
<PAGE>
2.11 "Minimum Return on Equity" shall mean a percentage applied to the
Company s average shareholders equity (i.e., mean of beginning and ending
balances, adjusted for unrealized investment gains or losses net of applicable
income taxes, if any) for the Calculation Year. The percentage shall be that
percentage, obtained from public information, equal to two times the mean of
the five year average post-tax yield on 10 year and 30 year U.S. Treasury
Securities. The Committee shall annually compute and announce this value as
it pertains to a calculation year.
2.12 "Excess Return on Equity" shall mean the Calculation Year's
consolidated net operating income in excess of the Minimum Return on Equity
all calculated in accordance with generally accepted accounting principles,
(GAAP). Net operating income shall exclude realized gains or losses on sales
of investment securities (irrespective of the treatment of such amounts under
GAAP) and extraordinary credits or charges.
2.13 "Minimum Annual Income" shall mean 112% of the prior year's
Consolidated Net Operating Income adjusted for dividend requirements on
preferred stock issued and outstanding during each year.
2.14 "Excess Earnings Growth" shall mean the Calculation Year's
Consolidated Net Operating Income adjusted for dividend requirements on
preferred stock issued and outstanding during such year in excess of the
Minimum Annual Income.
2.15 "Base Salary" shall mean the Employee's basic salary at
the rate in effect at the end of the Calculation Year excluding bonuses,
overtime, extraordinary compensation and contributions to the Old Republic
International Corporation Employees Savings and Stock Ownership Plan.
2.16 "Consolidated Net Operating Income" shall mean the Company's
income determined in accordance with generally accepted accounting principles
and adjusted for payment of income taxes and for the income of subsidiaries
and affiliates carried on an equity basis. Net operating income shall exclude
realized gains or losses on sales of investment securities (irrespective of
the treatment of such amounts under GAAP) and extraordinary credits or
charges.
-3-
<PAGE>
2.17 If in any Calculation Year the Company acquires any other business
accounted for as a purchase whose earnings contribute 5% or more to such Year's
consolidated net operating income, the earnings of the acquired Company for
the year of acquisition and the next succeeding year shall be eliminated
(together with related purchase accounting adjustments) in order to calculate
the performance data described in Sections 2.11 through 2.22 herein. No
elimination from any year shall be made when the acquired company has been
owned by the Company for two consecutive calendar years. Net operating income
shall exclude realized gains or losses on sales of investment securities
(irrespective of the treatment of such amounts under GAAP) and extraordinary
credits or charges.
2.18 "Earnings Per Share" shall mean earnings per share calculated in
accordance with AICPA Accounting Principles Board Opinion No. 15.
2.19 "Performance Multiplier" shall mean the number of percentage points
by which the Earnings Per Share for the Calculation Year exceeds 112% of the
Earnings Per Share for the prior year.
2.20 "Profit Sharing Base" shall mean the sum of:
(a) Earnings Growth multiplied by the Earnings Per Share
Multiplier;
(b) 5% Excess Return on Equity; and
(c) one and one-half percent (1-1/2%) of Eligible Employees
Base Salaries.
2.21 "Earnings Per Share Multiplier" shall mean a percentage of the
increase in the Earnings Per Share in the Calculation Year over the preceding
year as set forth in the following schedule:
Percentage Increase Earnings
In Earnings Per Share Per Share Multiplier
--------------------- --------------------
0 - 6% = 0%
6.01 to 10.00% = 10%
10.01 to 15.00% = 20%
15.01 to 20.00% = 30%
Over 20% = 40%
2.22 "Earnings Growth" shall mean the Calculation Year's Consolidated
Net Operating Income adjusted for dividend requirements on preferred stock
issued and outstanding during such year in excess of the prior year's
Consolidated Net Operating Income.
-4-
<PAGE>
ARTICLE THREE
-------------
ADMINISTRATION
--------------
3.1 The Plan shall be administered by the Compensation Committee of the
Board of Directors of the Company (hereinafter the Committee ) which shall be
appointed by the Board of Directors of the Company from its own members. The
membership of the Committee may be reduced, changed, or increased from time to
time in the absolute discretion of the Board of Directors of the Company.
3.2 The Committee shall have the authority to interpret the Plan, to
establish and revise rules and regulations relating to the Plan, and to make
the determinations which it believes necessary or advisable for the
administration of the Plan.
ARTICLE FOUR
------------
CALCULATION OF THE PERFORMANCE RECOGNITION POOL
-----------------------------------------------
4.1 Prior to each May 31 the Compensation Committee shall calculate the
amount of the Performance Recognition Pool for that year. The Performance
Recognition Pool for any year shall be equal to the lesser of:
(a) the Profit Sharing Base for the Calculation Year; or
(b) a percentage of the Eligible Employees Base Salaries, ranging from
25% to 45%, inclusive, determined on the basis of the following
scale:
Percent by Which Current Year's
Return on Equity Exceeds ROE
Target for the Year Salary Cap/Spread
------------------------------- -----------------
0 - 10% 25.0%
25.0 - 27.50%
10 - 20 + 0.25 point for each 1%
27.50% - 30.50%
20 - 30 + 0.30 point for each 1%
-5-
<PAGE>
30.50% - 34.00%
30 - 40 + 0.35 point for each 1%
34% - 38%
4 0 - 50 + 0.40 point for each 1%
38% - 43%
50 - 60 + 0.50 point for each 1%
60% and Above: Uniform
60 - 70 45% Cap
70 - 100
100 - 130
130 - 160
160 - 190
Over 190%
4.2 Notwithstanding any provisions herein to the contrary, the
Performance Recognition Pool shall be zero for any year if the Company
incurred a net operating loss or a net loss in the Calculation Year.
ARTICLE FIVE
------------
ALLOCATION OF THE PERFORMANCE RECOGNITION POOL
----------------------------------------------
5.1 Prior to each May 1, the OCEO shall, in consultation with the
Committee, designate the Employees employed by the Employers during any part
of such Year who will be eligible to share in the Performance Recognition Pool
for that Year.
5.2 On or before June 30 the Performance Recognition Pool for that year
shall be allocated among and credited to the accounts of the Employees on the
following basis, provided, however, that no member of the Committee shall be
able to share in the performance Recognition Pool for any year:
(a) First, amounts shall be allocated among and credited to all or such
Accounts, as the OCEO and the Committee in their discretion and judgment
deem appropriate, of those Employees who have Accounts in the Plan on the
allocation date and who are eligible and actively employed by an eligible
Employer during that year. The amount credited to each such Account shall
-6-
<PAGE>
equal the balance in each such Account at the beginning of the Year
multiplied by the Performance Multiplier. In no event, however, shall the
aggregate amount so credited exceed the lesser of 15% of the aggregate
Account balances on the allocation date or 20% of the Performance
Recognition Pool for that year.
(b) Secondly, out of the remaining portion of the Performance Recognition
Pool there shall be allocated among and credited to the Accounts of
Eligible Employees for the year (and who were during such year members of
the OCEO) such amounts as the Committee in its sole judgment deems
appropriate.
(c) Thirdly, the remaining portion, if any, of the Performance
Recognition Pool shall be allocated among and credited to the Accounts of
Eligible Employees for the year (but who during such year were not members
of the OCEO) as the OCEO in its discretion deems appropriate, provided,
however, the OCEO may, in its discretion, reserve up to 50% of any one
year's Pool which will not be allocated currently. The OCEO may carry
forward the unallocated portion of the Performance Recognition Pool and
allocate all or a portion of it pursuant to this subparagraph (c) during
one or more of the next succeeding three years; provided however, that the
total amount of any one year s carry forward must be allocated by the end
of the third year. Members of the OCEO shall participate in any future
allocation of such carry forwards as may be approved by the Committee.
5.3 In designating Eligible Employees and allocating the Performance
Recognition Pool among the Accounts of the Eligible Employees for any Year
pursuant to this Article, the OCEO and the Committee shall consider the
positions and responsibilities of Employees, their accomplishments during the
year, the value of such accomplishments to the Company, the OCEO's
expectations as to the future contributions of individual Employees to the
continued success of the Company and such other factors as the OCEO and the
Committee shall, in their discretion and judgment, deem appropriate.
ARTICLE SIX
-----------
DISTRIBUTIONS
-------------
6.1 The entire amount of the credit in the Account of a deceased
Eligible Employee or an Eligible Employee who attains age 55 or actually
retires for disability prior thereto, shall be paid to the person or
-7-
<PAGE>
persons entitled thereto at the time and in the manner provided in Sections
6.4, 6.5, 6.6, and 6.8 thereof.
6.2 Effective January 1, 1990, an Eligible Employee shall automatically
withdraw and receive in cash 50% of any award granted to him or her in 1990
and subsequent years pursuant to Sections 5.2(a), 5.2(b), and 5.2(c).
Effective January 1, 1995, an Eligible Employee shall also automatically
withdraw and receive in cash 50% of any Performance Multiplier granted to him
or her in 1995 and subsequent years pursuant to Section 5.2(a). The remaining
50% of each such award and each such Performance Multiplier shall be credited
to his or her Account as of such year and shall become vested in accordance
with the vesting schedule set forth in Section 6.3(b). The amounts so
withdrawn each year shall be paid to the Eligible Employees within ninety
(90) days of the date the Committee and/or OCEO make such awards or determine
such Performance Multipliers.
6.3 A portion of the amount of the credit in the Account of an Eligible
Employee as of the date he terminates his service for any reason other than
his death or retirement for age or disability shall be paid to the person or
persons entitled thereto at the times in the manner provided by Section 6.5
hereof. The amount to be paid shall be known as a vested interest, and shall
be equal to (a) the amounts which have been vested in him because he did not
make a withdrawal in a prior year plus (b) the following percentage of the
balance of his credit in his Account:
Completed Years To Be Paid
of Service (Vested Interest)
--------------- -----------------
Less than One 0%
One 10%
Two 20%
Three 30%
Four 40%
Five 50%
Six 60%
Seven 70%
Eight 80%
Nine 90%
Ten 100%
Any amount not vested in an Employee shall be forfeited. Forfeitures
created during any year shall be allocated at the end of said year to
Employees actively employed by an Employer on December 31 of that year in the
ratio that the Account balance of each such Employee on January 1 of that
year bears to the total Account Balance of all such Employees.
-8-
<PAGE>
6.4 Amounts payable to an Eligible Employee who retires for age, after
attaining age 55, shall be paid to the Employee in substantially equal
quarterly installments over a number of years (not to exceed 20 years)
selected by the Committee, in its sole discretion, beginning on the first
day of the calendar quarter following the later of the Employee's attaining
age 55 or his termination of employment. In determining the number of
installments the Committee may consult with the Eligible Employee and may
also consider as a guideline that the retirement programs sponsored by
Employers hereunder should equal approximately 80% of the Eligible Employee's
average compensation over his last three years of employment.
6.5 If an Employee s employment with an Employer is terminated for
reasons other than death, disability, or retirement after attaining age 55,
his vested Account balance shall be paid to him in substantially equal
quarterly installments over a number of years (not to exceed 20 years)
selected by the Committee beginning on the first day of the calendar quarter
following the later of (a) his attaining age 55 or (b) the 12th month after
his termination of employment.
6.6 If an Employee becomes disabled while employed by an Employer but
prior to receiving his Account, his Account balance shall be paid to him in
40 substantially equal quarterly installments beginning on the first day of
the calendar quarter following the month during which he becomes disabled.
For purposes of this Article, an Employee shall be deemed to be disabled if
he is totally and permanently disabled within the meaning of his Employer's
group employee disability policy or eligible for disability benefits under
the Social Security Act.
6.7 If an Employee is eligible for no other benefits under this Plan,
his Account balance shall become nonforfeitable and be paid to him in a lump
sum on the first day of the calendar quarter following the date on which
occurs any of the following events:
(a) a dissolution or liquidation of the Company;
(b) the merger or consolidation of the Company with another corporation
in which the Company is not the surviving corporation; or
(c) the change in any one year of more than 50% of the members of the
Board of Directors of the Company if one or more of the new directors
were not nominated by the Board of Directors of the Company.
-9-
<PAGE>
If there is a carry forward balance not allocated pursuant to Section 5.2
(c) when an event described in (a), (b) or (c) above occurs, such carry
forward balance shall be immediately allocated among the Accounts of all
Employees in the ratio that each such Employee s Account balance bears to
the total of all such Account balances. Said additional amounts shall be
100% vested and paid in accordance with the provisions of this Article.
Any subsequent contributions allocated to an Employee s Account during the
two years following the occurrence of an event described in paragraphs (b)
or (c) of this Section because the Plan is continued in accordance with
Section 8.2 hereof shall be non-forfeitable and shall be distributed
immediately after such allocation.
6.8 An Employee may designate in writing, on forms prescribed by and
filed with the Committee, a beneficiary or beneficiaries to receive any
payments payable after his death. If an Employee dies while employed by an
employer or after he has begun to receive his benefits under this Plan, his
Account balance (or the remainder of his Account balance if his benefits had
already commenced) shall be paid to the beneficiary or beneficiaries
designated by the Employer (or, in the absence of such designation, to his
legal representative). Such payments shall be made in one of the following
forms as determined by the Committee: (i) substantially equal quarterly
installments over a number of years (not to exceed 10 years), (ii) a lump sum
payment, or (iii) any combination of the above options.
6.9 If an Employee is adjudged incompetent or if the Committee deems
him unqualified to handle his own affairs, the Committee may direct that any
payments which would otherwise be payable to the Employee shall be paid (in
the same amounts and on the same dates as such payments would have been paid
to the Employee) to the guardian or conservator of such Employee or, if none
has been appointed, the Committee may, in its discretion, direct that such
payments be made to the Employee s spouse or adult child or any other person
or institution who is caring for such Employee and any payments so made shall
to the extent thereof fully release and discharge the Committee and the
Employers from any further liability to the Employee.
6.10 Notwithstanding any other provisions of this Plan to the contrary,
the Committee may upon an Employee s death, disability, or termination of
employment distribute his Account balance to him (or his beneficiary in the
-10-
<PAGE>
case of death, or his guardian or to the person or institution caring for him
in the event that he is adjudged incompetent or considered by the Committee
to be unable to manage his own affairs) more quickly than that called for in
Section 6.2 through 6.8 if the Committee in its sole discretion deems it is
desirable to do so.
6.11 Notwithstanding any other provisions of this Plan to the contrary,
the Committee may deduct from any payments under the Plan any taxes required
to be withheld by the Federal or any state or local government for the account
of such Employee.
ARTICLE SEVEN
-------------
FORFEITURE
----------
7.1 As a condition to the continued receipt of benefits hereunder each
Employee:
(a) shall be required for a period of three years after his termination
of employment with an Employer hereunder to hold himself available to the
Company and his Employer for reasonable consultation inasfar as his health
permits;
(b) shall not for a period of three years after his termination of
employment with an Employer hereunder, either as an individual on his own
account, as a partner, joint venturer, employee, agent, salesman for any
person; as an officer, director or stockholder (other than a beneficial
holder of not more than 1% of the outstanding voting stock of a company
having at least 500 holders of voting stock) of a corporation, or otherwise
directly or indirectly,
(i) enter into or engage in any business competitive with that
carried on by the Company or his Employer within any area of the
United States in which his Employer or the Company is then doing
business, providing Employee has had access to any of the Company's
or his Employer's trade secrets, secret underwriting or business
information, programs, plans, data, processes, techniques, or
customer information; or
(ii) solicit or attempt to solicit any of his Employer's or the
Company s customers with whom Employee has had contact as an
Employee in the exercise of his duties and responsibilities hereunder
with the intent or purpose to perform for such customer the same or
-11-
<PAGE>
similar services or to sell to such customer the same or similar
products or policies which Employee performed for or sold to such
customer during the term of his employment.
If the Committee determines that an Employee has refused to make himself
available for consultation or violated his agreement, the Committee may, by
written notice to such Employee, cause his benefits to be immediately
suspended for the duration of such refusal or competition or if payment of
benefits had not yet commenced, notify the Employee that such continued
conduct will cause a forfeiture of his Account balance. If after the
sending of such notice the Committee finds that the Employee has continued
to refuse to consult or continue to compete with the Company or his
Employer for a period of thirty (30) days following such notice, the
Committee may permanently cancel the Employee s Account hereunder, and
thereupon all rights of such Employee under this Plan shall terminate. The
foregoing forfeiture provisions shall be inoperative if an event described
in Section 6.5 (a), (b) or (c) occurs.
7.2 Any amounts forfeited pursuant to Section 7.1 hereof shall be
allocated as a forfeiture in accordance with Section 6.3 hereof.
ARTICLE EIGHT
-------------
AMENDMENT AND TERMINATION
-------------------------
8.1 The Company shall have the power at any time and from time to time,
to amend this Plan by resolution of its Board of Directors provided, however,
that no amendment under any circumstances may be adopted the effect of which
would be to deprive any Participant of his then vested interest, if any,
in this Plan.
8.2 The Company reserves the right to terminate this Plan by
resolution of its Board of Directors. Upon termination of this Plan, the
credits in the Accounts of Employees shall become 100% vested and non-
forfeitable. Distribution of the balances in said Accounts shall be made
in accordance with Section 6.4 hereof upon the Employee s subsequent
retirement or termination of service. There shall be no increase in an
Account balance of an Employee between the date the Plan is terminated and
the date the Account balance is distributed. If an event described in
Section 6.7(b) or (c) occurs, the Plan as it then exists must be continued
and contributions made for two years before it can be terminated. Any
unallocated balance carried forward shall be similarly allocated prior to
the expiration of this two-year period. All Accounts shall be fully vested
and distribution shall be made in accordance with Section 6.4 hereof.
-12-
<PAGE>
ARTICLE NINE
------------
MISCELLANEOUS
-------------
9.1 No Employee or any other person shall have any interest in any fund
or reserve account or in any specific asset or assets of the Company or any
Employer by reason of any credit to his Account under this Plan, nor have
the right to receive any distribution under this Plan except as and to the
extent expressly provided for in the Plan.
9.2 Nothing in the Plan shall be construed to:
(a) give any Employee any right to participate in the Plan, except in
accordance with the provisions of the Plan;
(b) limit in any way the right of an Employer to terminate an Employee's
employment; or
(c) be evidence of any agreement or understanding, express or implied,
that an Employer will employ an Employee in any particular position or at
any particular rate of remuneration.
9.3 No benefits under this Plan shall be pledged, assigned, transferred,
sold, or in any manner whatsoever anticipated, charged, or encumbered by an
Employee, former Employee, or their beneficiaries, or in any manner be liable
for the debts, contracts, obligations or engagements of any person having a
possible interest in the Plan, voluntary or involuntary, or for any claims,
legal or equitable, against any such person, including claims for alimony or
the support of any spouse.
9.4 This Plan shall be construed in accordance with the laws of the
State of Illinois in every respect including without limitation, validity in
its interpretation and performance.
9.5 Article headings and numbers herein are included for convenience of
reference only, and this Plan is to be construed without any reference
thereto. If there is any conflict between such numbers and headings and the
text hereof, the text shall control.
-13-
<PAGE>
9.6 Wherever appropriate, words used in this Plan in the singular
include the plural, and the masculine include the feminine.
IN WITNESS HEREOF, the Company has caused this Plan, as amended and
restated, to be signed by its duly qualified officers and caused its corporate
seal to be hereunto affixed on this 14th day of March, 1996.
OLD REPUBLIC INTERNATIONAL CORPORATION
By________/s/ A.C. Zucaro____________
President
Attest:
_____/s/ Spencer LeRoy, III______
Secretary
Exhibit (11)
<TABLE>
<CAPTION>
OLD REPUBLIC INTERNATIONAL CORPORATION
EARNINGS PER SHARE EXHIBIT
(In Millions)
- -------------------------------------------------------------------------------
Primary EPS
Years Ended December 31,
------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Weighted average number of common shares actually
outstanding. . . . . . . . . . . . . . 52.1 51.8 51.6
Weighted average number of incremental shares for
common stock equivalents:
Redeemable and/or convertible preferred stock. . 4.7 4.9 5.0
Stock Options. . . . . . . . . . . . . . . . . . .4 .3 .4
------ ------ ------
Weighted average number of common shares and common
stock equivalents outstanding - primary. . . . . 57.2 57.2 57.0
====== ====== ======
Net income for the period. . . . . . . . . . . . $212.7 $151.0 $175.1
Less dividends applicable to appropriate series
of redeemable and convertible preferred stock . 4.9 5.1 5.2
------ ------ ------
Adjusted net income - primary. . . . . . . . . . $207.7 $145.9 $169.8
====== ====== ======
Earnings per share - primary . . . . . . . . . . $ 3.63 $ 2.55 $ 2.98
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
Fully Diluted EPS
Years Ended December 31,
------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Weighted average number of common shares and
common stock equivalents outstanding - primary 57.2 57.2 57.0
Weighted average number of incremental shares for
common stock equivalents:
Redeemable and/or convertible preferred
stock/debentures . . . . . . . . . . . . . . . 4.4 4.4 4.4
Stock options . . . . . . . . . . . . . . . . . .3 - -
------ ------ ------
Weighted average number of common shares and
common stock equivalents outstanding - fully diluted 62.0 61.6 61.5
====== ====== ======
Adjusted net income - primary. . . . . . . . . . $207.7 $145.9 $169.8
Adjustment for dividends/interest applicable to
appropriate series of redeemable and convertible
preferred stock/debentures. . . . . . . . . . . 4.2 4.2 4.2
------ ------ ------
Adjusted net income - fully diluted. . . . . . . $212.0 $150.1 $174.0
====== ====== ======
Earnings per share - fully diluted . . . . . . . $ 3.42 $ 2.44 $ 2.83
====== ====== ======
</TABLE>
Exhibit (21)
------------
<TABLE>
<CAPTION>
Subsidiaries of the registrant (As of December 31, 1995)
- ----------------------------------------------------------------
Percentage
of Voting
Securities
Owned by
State of Immediate
Name Organization Parent
- ------------------------------------------------------- -------------- ------------
<S> <C> <C>
OLD REPUBLIC INTERNATIONAL CORPORATION Delaware ---
- -------------------------------------------------------
Old Republic Capital Corporation Delaware 100%
-----------------------------------------------------
Old Republic Nucorp, Inc. Delaware 100%
-----------------------------------------------------
Old Republic Title Company of Sacramento California 100%
Old Republic General Insurance Group, Inc. Delaware 100%
-----------------------------------------------------
Bitco Corporation Delaware 100%
Bituminous Casualty Corporation Illinois 100%
Bituminous Fire and Marine Insurance Corporation Illinois 100%
Brummel Brothers, Inc. Illinois 100%
Chicago Underwriting Group, Inc. Delaware 100%
Upper Peninsula Insurance Company Arizona 100%
Employers General Insurance Group, Inc. Delaware 93%
Employers General Insurance Company Texas 100%
Employers General Insurance, Ltd. Bermuda 100%
Employers National Risk Management Services, Inc. Texas 100%
Employers Claims Adjustment Services, Inc. Texas 100%
National General Agency, Inc. Texas 100%
ORI Great West Holding, Inc. Delaware 100%
Central Data Services, Inc. Delaware 100%
Great West Casualty Company Nebraska 100%
Great West Insurance Agencies, Inc. Delaware 100%
International Business & Mercantile Ins. Managers, Inc. Delaware 100%
Old Republic Home Protection Company, Inc. California 100%
Old Republic Insurance Company Pennsylvania 100%
Old Republic Insured Credit Services, Inc. Illinois 100%
Old Republic Lloyds of Texas Texas 100%
Old Republic Northern Holdings, Inc. Delaware 93%
Old Republic Mercantile Insurance Company Arizona 100%
Old Republic Risk Management, Inc. Delaware 100%
Old Republic Security Holdings, Inc. Delaware 100%
Old Republic Minnehoma Insurance Company Arizona 100%
ORDESCO, Inc. Oklahoma 100%
Old Republic Standard Underwriters, Inc. Delaware 86%
Old Republic Standard Insurance Company Arizona 100%
Old Republic Surety Group, Inc. Delaware 93%
Old Republic Surety Company Wisconsin 100%
Old Republic Union Insurance Company Illinois 100%
Old Republic Union Insurance Managers, Inc. Alabama 100%
Phoenix Aviation Managers, Inc. Delaware 90%
Aerie REassurance Company, Ltd. Bermuda 100%
Reliable Canadian Holdings, Ltd. Ontario(Canada) 100%
RELCAN-DISCC, Ltd. Ontario(Canada) 100%
DISCC, Enterprise, Inc. Ontario(Canada) 100%
Old Republic Insurance Company of Canada Ontario(Canada) 100%
Old Republic International Reinsurance Group, Inc. Delaware 100%
American Business & Mercantile Insurance Group, Inc. Delaware 40%
American Business & Mercantile REassurance Co. Delaware 100%
American Treaty Management Corporation Delaware 100%
International Business & Mercantile REassurance Co. Illinois 100%
Old Republic RE, Inc. Delaware 100%
Sierra Reinsurance Services, Inc. Delaware 100%
Old Republic Mortgage Guaranty Group, Inc. Delaware 100%
-----------------------------------------------------
Republic Mortgage Insurance Company North Carolina 100%
Republic Mortgage Insurance Company of Florida Florida 100%
Republic Mortgage Insurance Company of North Carolina North Carolina 100%
RMIC Corporation North Carolina 100%
Old Republic Title Insurance Group, Inc. Delaware 100%
-----------------------------------------------------
Old Republic National Title Holding Company Delaware 100%
Badger Abstract & Title Corporation Wisconsin 100%
Central Florida Title Company Florida 100%
Houston Title Company Texas 100%
Old Republic Title Agency of Columbus, Inc. Ohio 100%
Old Republic Title Company of Bell County Texas 100%
Old Republic Title Company of Cleburne Texas 100%
Old Republic Title Company of Conroe Texas 54%
Old Republic Title Company of Indiana Indiana 100%
Old Republic Title Company of Kansas City, Inc. Missouri 100%
Old Republic Title Company of St. Louis, Inc. Missouri 100%
Old Republic Title Company of Tennessee Tennessee 100%
Old Republic Title Company of Utah Utah 100%
Southwest Land Title Co. of Fort Worth, Inc. Texas 100%
The Title Company of North Carolina, Inc. North Carolina 100%
Old Republic National Title Insurance Company Minnesota 100%
Mississippi Valley Title Insurance Company Mississippi 100%
Old Republic General Title Insurance Corporation Ohio 100%
Old Republic Title Holding Company, Inc. California 100%
Old Republic Title Company of Ventura County California 100%
Old Republic Exchange Facilitator Company California 100%
Old Republic Title Company California 100%
Old Republic Title Company of Nevada Nevada 100%
Old Republic Title Corporation of Hawaii, Ltd. Hawaii 100%
Old Republic Escrow Corporation Hawaii 100%
Old Republic Title Insurance Agency, Inc. Arizona 100%
Old Republic Title, Ltd. Delaware 100%
Old Republic Life Insurance Group, Inc. Delaware 100%
-----------------------------------------------------
Old Republic Dealer Service Corporation Delaware 100%
ORDESCO Life & Accident Insurance Company Arizona 100%
Old Republic Life Insurance Company Illinois 100%
Old Republic Canadian Holdings, Ltd. Ontario(Canada) 100%
Reliable Life Insurance Company Ontario(Canada) 100%
Old Republic Life Insurance Company of New York New York 100%
Old Republic Life Reinsurance Group, Inc. Delaware 100%
Home Owners Life Insurance Company Illinois 100%
Old Republic Marketing, Inc. Illinois 100%
-----------------------------------------------------
Owns minor non-consolidated subsidiaries & affiliates Various Various
American Business & Personal Insurance Mutual, Inc. Delaware *
-----------------------------------------------------
Inter Capital Group, Inc. Delaware 100%
Inter Capital Assurance Company Arizona 100%
Inter Capital Leasing and Finance Corporation Delaware 100%
Inter Capital Realty Corporation Delaware 100%
Ridgefield International, Inc. Delaware 100%
Inter West Assurance Company, Ltd. Bermuda 100%
Remington General Assurance Limited Bermuda 100%
* Owned by its policyholders
</TABLE>
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the registration
statements of Old Republic International Corporation on Form S-8
(File Nos. 2-66302, 33-38528, 33-49646, 33-32439, 2-80883,
33-52069) and on Form S-3 (File Nos. 33-49864 and 33-54104) of
our report dated March 13, 1996 on our audits of the consolidated
financial statements of Old Republic International Corporation as
of December 31, 1995 and 1994, and for the years ended December 31,
1995, 1994 and 1993, which report is included in this Annual Report
on Form 10-K.
Coopers & Lybrand L.L.P.
Chicago, Illinois
March 27, 1996
Exhibit (24)
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that the
undersigned, being a member of the Board of Directors of Old
Republic International Corporation, a corporation duly organized
under the laws of the State of Delaware and having its principal
place of business in Chicago, Illinois, does hereby make,
constitute, and appoint A.C. Zucaro, President of the said
corporation, as his true and lawful attorney, for him, and in his
name, place, and stead to execute, sign, acknowledge, confirm or
ratify all documents, papers, forms, statements, certificates and
filings of any kind whatsoever required to be filed by the said
corporation with the Securities and Exchange Commission, giving
and granting to said attorney full power and authority to do and
perform all and every act whatsoever requisite and necessary to
be done in and about the premises as fully, to all intents and
purposes, as he might or could do if personally present, with
full power of substitution and revocation, hereby ratifying and
confirming all that said attorney or his substitute shall
lawfully do or cause to be done by virtue hereof. The power of
attorney aforesaid shall expire as of the anniversary of the date
shown below.
IN WITNESS WHEREOF, the undersigned has hereunto set
his hand and seal this 14th day of March, 1996.
/s/ William G. White, Jr.
---------------------------
William G. White, Jr.
WITNESS:
/s/ Spencer LeRoy, III
--------------------------
/s/ Paul D. Adams
--------------------------
<PAGE>
Exhibit (24)
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that the
undersigned, being a member of the Board of Directors of Old
Republic International Corporation, a corporation duly organized
under the laws of the State of Delaware and having its principal
place of business in Chicago, Illinois, does hereby make,
constitute, and appoint A.C. Zucaro, President of the said
corporation, as his true and lawful attorney, for him, and in his
name, place, and stead to execute, sign, acknowledge, confirm or
ratify all documents, papers, forms, statements, certificates and
filings of any kind whatsoever required to be filed by the said
corporation with the Securities and Exchange Commission, giving
and granting to said attorney full power and authority to do and
perform all and every act whatsoever requisite and necessary to
be done in and about the premises as fully, to all intents and
purposes, as he might or could do if personally present, with
full power of substitution and revocation, hereby ratifying and
confirming all that said attorney or his substitute shall
lawfully do or cause to be done by virtue hereof. The power of
attorney aforesaid shall expire as of the anniversary of the date
shown below.
IN WITNESS WHEREOF, the undersigned has hereunto set
his hand and seal this 14th day of March, 1996.
/s/ Peter Lardner
-------------------
Peter Lardner
WITNESS:
/s/ Spencer LeRoy, III
--------------------------
/s/ Paul D. Adams
--------------------------
<PAGE>
Exhibit (24)
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that the
undersigned, being a member of the Board of Directors of Old
Republic International Corporation, a corporation duly organized
under the laws of the State of Delaware and having its principal
place of business in Chicago, Illinois, does hereby make,
constitute, and appoint A.C. Zucaro, President of the said
corporation, as his true and lawful attorney, for him, and in his
name, place, and stead to execute, sign, acknowledge, confirm or
ratify all documents, papers, forms, statements, certificates and
filings of any kind whatsoever required to be filed by the said
corporation with the Securities and Exchange Commission, giving
and granting to said attorney full power and authority to do and
perform all and every act whatsoever requisite and necessary to
be done in and about the premises as fully, to all intents and
purposes, as he might or could do if personally present, with
full power of substitution and revocation, hereby ratifying and
confirming all that said attorney or his substitute shall
lawfully do or cause to be done by virtue hereof. The power of
attorney aforesaid shall expire as of the anniversary of the date
shown below.
IN WITNESS WHEREOF, the undersigned has hereunto set
his hand and seal this 14th day of March, 1996.
/s/ Anthony F. Colao
----------------------
Anthony F. Colao
WITNESS:
/s/ Spencer LeRoy, III
--------------------------
/s/ Paul D. Adams
--------------------------
<PAGE>
Exhibit (24)
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that the
undersigned, being a member of the Board of Directors of Old
Republic International Corporation, a corporation duly organized
under the laws of the State of Delaware and having its principal
place of business in Chicago, Illinois, does hereby make,
constitute, and appoint A.C. Zucaro, President of the said
corporation, as his true and lawful attorney, for him, and in his
name, place, and stead to execute, sign, acknowledge, confirm or
ratify all documents, papers, forms, statements, certificates and
filings of any kind whatsoever required to be filed by the said
corporation with the Securities and Exchange Commission, giving
and granting to said attorney full power and authority to do and
perform all and every act whatsoever requisite and necessary to
be done in and about the premises as fully, to all intents and
purposes, as he might or could do if personally present, with
full power of substitution and revocation, hereby ratifying and
confirming all that said attorney or his substitute shall
lawfully do or cause to be done by virtue hereof. The power of
attorney aforesaid shall expire as of the anniversary of the date
shown below.
IN WITNESS WHEREOF, the undersigned has hereunto set
his hand and seal this 14th day of March, 1996.
/s/ Kurt W. Kreyling
----------------------
Kurt W. Kreyling
WITNESS:
/s/ Spencer LeRoy, III
--------------------------
/s/ Paul D. Adams
--------------------------
<PAGE>
Exhibit (24)
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that the
undersigned, being a member of the Board of Directors of Old
Republic International Corporation, a corporation duly organized
under the laws of the State of Delaware and having its principal
place of business in Chicago, Illinois, does hereby make,
constitute, and appoint A.C. Zucaro, President of the said
corporation, as his true and lawful attorney, for him, and in his
name, place, and stead to execute, sign, acknowledge, confirm or
ratify all documents, papers, forms, statements, certificates and
filings of any kind whatsoever required to be filed by the said
corporation with the Securities and Exchange Commission, giving
and granting to said attorney full power and authority to do and
perform all and every act whatsoever requisite and necessary to
be done in and about the premises as fully, to all intents and
purposes, as he might or could do if personally present, with
full power of substitution and revocation, hereby ratifying and
confirming all that said attorney or his substitute shall
lawfully do or cause to be done by virtue hereof. The power of
attorney aforesaid shall expire as of the anniversary of the date
shown below.
IN WITNESS WHEREOF, the undersigned has hereunto set
his hand and seal this 14th day of March, 1996.
/s/ John C. Collopy
---------------------
John C. Collopy
WITNESS:
/s/ Spencer LeRoy, III
--------------------------
/s/ Paul D. Adams
--------------------------
<PAGE>
Exhibit (24)
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that the
undersigned, being a member of the Board of Directors of Old
Republic International Corporation, a corporation duly organized
under the laws of the State of Delaware and having its principal
place of business in Chicago, Illinois, does hereby make,
constitute, and appoint A.C. Zucaro, President of the said
corporation, as his true and lawful attorney, for him, and in his
name, place, and stead to execute, sign, acknowledge, confirm or
ratify all documents, papers, forms, statements, certificates and
filings of any kind whatsoever required to be filed by the said
corporation with the Securities and Exchange Commission, giving
and granting to said attorney full power and authority to do and
perform all and every act whatsoever requisite and necessary to
be done in and about the premises as fully, to all intents and
purposes, as he might or could do if personally present, with
full power of substitution and revocation, hereby ratifying and
confirming all that said attorney or his substitute shall
lawfully do or cause to be done by virtue hereof. The power of
attorney aforesaid shall expire as of the anniversary of the date
shown below.
IN WITNESS WHEREOF, the undersigned has hereunto set
his hand and seal this 14th day of March, 1996.
/s/ David Sursa
-----------------
David Sursa
WITNESS:
/s/ Spencer LeRoy, III
--------------------------
/s/ Paul D. Adams
--------------------------
<PAGE>
Exhibit (24)
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that the
undersigned, being a member of the Board of Directors of Old
Republic International Corporation, a corporation duly organized
under the laws of the State of Delaware and having its principal
place of business in Chicago, Illinois, does hereby make,
constitute, and appoint A.C. Zucaro, President of the said
corporation, as his true and lawful attorney, for him, and in his
name, place, and stead to execute, sign, acknowledge, confirm or
ratify all documents, papers, forms, statements, certificates and
filings of any kind whatsoever required to be filed by the said
corporation with the Securities and Exchange Commission, giving
and granting to said attorney full power and authority to do and
perform all and every act whatsoever requisite and necessary to
be done in and about the premises as fully, to all intents and
purposes, as he might or could do if personally present, with
full power of substitution and revocation, hereby ratifying and
confirming all that said attorney or his substitute shall
lawfully do or cause to be done by virtue hereof. The power of
attorney aforesaid shall expire as of the anniversary of the date
shown below.
IN WITNESS WHEREOF, the undersigned has hereunto set
his hand and seal this 14th day of March, 1996.
/s/ Jimmy A. Dew
------------------
Jimmy A. Dew
WITNESS:
/s/ Spencer LeRoy, III
--------------------------
/s/ Paul D. Adams
--------------------------
<PAGE>
Exhibit (24)
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that the
undersigned, being a member of the Board of Directors of Old
Republic International Corporation, a corporation duly organized
under the laws of the State of Delaware and having its principal
place of business in Chicago, Illinois, does hereby make,
constitute, and appoint A.C. Zucaro, President of the said
corporation, as his true and lawful attorney, for him, and in his
name, place, and stead to execute, sign, acknowledge, confirm or
ratify all documents, papers, forms, statements, certificates and
filings of any kind whatsoever required to be filed by the said
corporation with the Securities and Exchange Commission, giving
and granting to said attorney full power and authority to do and
perform all and every act whatsoever requisite and necessary to
be done in and about the premises as fully, to all intents and
purposes, as he might or could do if personally present, with
full power of substitution and revocation, hereby ratifying and
confirming all that said attorney or his substitute shall
lawfully do or cause to be done by virtue hereof. The power of
attorney aforesaid shall expire as of the anniversary of the date
shown below.
IN WITNESS WHEREOF, the undersigned has hereunto set
his hand and seal this 14th day of March, 1996.
/s/ John W. Popp
------------------
John W. Popp
WITNESS:
/s/ Spencer LeRoy, III
--------------------------
/s/ Paul D. Adams
--------------------------
<PAGE>
Exhibit (24)
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that the
undersigned, being a member of the Board of Directors of Old
Republic International Corporation, a corporation duly organized
under the laws of the State of Delaware and having its principal
place of business in Chicago, Illinois, does hereby make,
constitute, and appoint A.C. Zucaro, President of the said
corporation, as his true and lawful attorney, for him, and in his
name, place, and stead to execute, sign, acknowledge, confirm or
ratify all documents, papers, forms, statements, certificates and
filings of any kind whatsoever required to be filed by the said
corporation with the Securities and Exchange Commission, giving
and granting to said attorney full power and authority to do and
perform all and every act whatsoever requisite and necessary to
be done in and about the premises as fully, to all intents and
purposes, as he might or could do if personally present, with
full power of substitution and revocation, hereby ratifying and
confirming all that said attorney or his substitute shall
lawfully do or cause to be done by virtue hereof. The power of
attorney aforesaid shall expire as of the anniversary of the date
shown below.
IN WITNESS WHEREOF, the undersigned has hereunto set
his hand and seal this 14th day of March, 1996.
/s/ William A. Simpson
------------------------
William A. Simpson
WITNESS:
/s/ Spencer LeRoy, III
--------------------------
/s/ Paul D. Adams
--------------------------
<PAGE>
Exhibit (24)
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that the
undersigned, being a member of the Board of Directors of Old
Republic International Corporation, a corporation duly organized
under the laws of the State of Delaware and having its principal
place of business in Chicago, Illinois, does hereby make,
constitute, and appoint A.C. Zucaro, President of the said
corporation, as his true and lawful attorney, for him, and in his
name, place, and stead to execute, sign, acknowledge, confirm or
ratify all documents, papers, forms, statements, certificates and
filings of any kind whatsoever required to be filed by the said
corporation with the Securities and Exchange Commission, giving
and granting to said attorney full power and authority to do and
perform all and every act whatsoever requisite and necessary to
be done in and about the premises as fully, to all intents and
purposes, as he might or could do if personally present, with
full power of substitution and revocation, hereby ratifying and
confirming all that said attorney or his substitute shall
lawfully do or cause to be done by virtue hereof. The power of
attorney aforesaid shall expire as of the anniversary of the date
shown below.
IN WITNESS WHEREOF, the undersigned has hereunto set
his hand and seal this 14th day of March, 1996.
/s/ Arnold L. Steiner
-----------------------
Arnold L. Steiner
WITNESS:
/s/ Spencer LeRoy, III
--------------------------
/s/ Paul D. Adams
--------------------------
<PAGE>
Exhibit (24)
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that the
undersigned, being a member of the Board of Directors of Old
Republic International Corporation, a corporation duly organized
under the laws of the State of Delaware and having its principal
place of business in Chicago, Illinois, does hereby make,
constitute, and appoint A.C. Zucaro, President of the said
corporation, as his true and lawful attorney, for him, and in his
name, place, and stead to execute, sign, acknowledge, confirm or
ratify all documents, papers, forms, statements, certificates and
filings of any kind whatsoever required to be filed by the said
corporation with the Securities and Exchange Commission, giving
and granting to said attorney full power and authority to do and
perform all and every act whatsoever requisite and necessary to
be done in and about the premises as fully, to all intents and
purposes, as he might or could do if personally present, with
full power of substitution and revocation, hereby ratifying and
confirming all that said attorney or his substitute shall
lawfully do or cause to be done by virtue hereof. The power of
attorney aforesaid shall expire as of the anniversary of the date
shown below.
IN WITNESS WHEREOF, the undersigned has hereunto set
his hand and seal this 14th day of March, 1996.
/s/ William R. Stover
-----------------------
William R. Stover
WITNESS:
/s/ Spencer LeRoy, III
--------------------------
/s/ Paul D. Adams
--------------------------
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM OLD REPUBLIC INTERNATIONAL'S CONSOLIDATED BALANCE SHEET
AND CONSOLIDATED STATEMENT OF INCOME AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<DEBT-HELD-FOR-SALE> 2,146
<DEBT-CARRYING-VALUE> 1,714
<DEBT-MARKET-VALUE> 1,759
<EQUITIES> 126
<MORTGAGE> 11
<REAL-ESTATE> 0
<TOTAL-INVEST> 4,326
<CASH> 19
<RECOVER-REINSURE> 24
<DEFERRED-ACQUISITION> 107
<TOTAL-ASSETS> 6,593
<POLICY-LOSSES> 3,705
<UNEARNED-PREMIUMS> 406
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 75
<NOTES-PAYABLE> 320
17
55
<COMMON> 58
<OTHER-SE> 1,553
<TOTAL-LIABILITY-AND-EQUITY> 6,593
1,251
<INVESTMENT-INCOME> 251
<INVESTMENT-GAINS> 49
<OTHER-INCOME> 142
<BENEFITS> 740
<UNDERWRITING-AMORTIZATION> 176
<UNDERWRITING-OTHER> 455
<INCOME-PRETAX> 316
<INCOME-TAX> 103
<INCOME-CONTINUING> 212
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 212
<EPS-PRIMARY> 3.63
<EPS-DILUTED> 3.42
<RESERVE-OPEN> 1,768
<PROVISION-CURRENT> 684
<PROVISION-PRIOR> (92)
<PAYMENTS-CURRENT> 207
<PAYMENTS-PRIOR> 332
<RESERVE-CLOSE> 1,820
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
