<PAGE> 1
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. THESE
SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE
TIME A FINAL PROSPECTUS SUPPLEMENT IS DELIVERED. THIS PROSPECTUS SUPPLEMENT
AND THE PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS SUPPLEMENT DATED JUNE 12, 1997
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED AUGUST 18, 1992)
$115,000,000
[OLD REPUBLIC INTERNATIONAL CORPORATION LOGO]
% DEBENTURES DUE , 2007
---------------------------
The % Debentures due , 2007 (the "Debentures") of Old
Republic International Corporation (the "Corporation") offered hereby will
mature on , 2007. Interest on the Debentures will accrue from the
date of original issuance and is payable on and of each
year, commencing on , 1997. The Debentures may not be redeemed prior
to maturity and are not entitled to any sinking fund.
The Debentures initially will be represented by one or more Global
Debentures (the "Global Debentures") registered in the name of a nominee of The
Depository Trust Company ("DTC"). Beneficial interests in the Global Debentures
will be shown on, and transfers thereof will be effected only through, records
maintained by DTC and its participants. Except as described herein, Debentures
in definitive form will not be issued. So long as the Debentures are registered
in the name of DTC or its nominee, the Debentures will trade in DTC's Same-Day
Funds Settlement System until maturity, and secondary market trading activity in
the Debentures will therefore settle in immediately available funds. All
payments of principal and interest will be made by the Corporation in
immediately available funds. See "Description of Debentures -- Book-Entry
System."
The Debentures have been approved for listing on the New York Stock
Exchange under the symbol ORI 07, subject to official notice of issuance.
---------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<S> <C> <C> <C>
============================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public(1) Commissions(2) Corporation(1)(3)
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
Per Debenture................................ % % %
- ------------------------------------------------------------------------------------------------------------
Total........................................ $ $ $
============================================================================================================
</TABLE>
(1) Plus accrued interest, if any, from the date of original issue.
(2) The Corporation has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933.
See "Underwriting."
(3) Before deducting expenses payable by the Corporation estimated to be
$210,000.
---------------------------
The Debentures are offered by the several Underwriters subject to delivery by
the Corporation and acceptance by the Underwriters, to prior sale and to
withdrawal, cancellation or modification of the offer without notice. It is
expected that the Debentures will be ready for delivery in book-entry form only
through the facilities of DTC in New York, New York, on or about ,
1997, against payment therefor in immediately available funds.
---------------------------
LEHMAN BROTHERS
EVEREN SECURITIES, INC.
J.P. MORGAN & CO.
, 1997
<PAGE> 2
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE DEBENTURES
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
TO NORTH CAROLINA INVESTORS: THE COMMISSIONER OF INSURANCE OF THE STATE OF
NORTH CAROLINA HAS NEITHER APPROVED NOR DISAPPROVED THIS OFFERING, NOR HAS THE
COMMISSIONER RULED ON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR
THE PROSPECTUS.
PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by the
detailed information and financial statements, including the notes thereto,
appearing in the documents incorporated herein by reference or elsewhere in this
Prospectus Supplement and the accompanying Prospectus.
THE CORPORATION
Old Republic International Corporation (the "Corporation") is an insurance
holding company which ranks among the 50 largest publicly-held, independent
insurance groups in the United States. The Corporation's subsidiaries market,
underwrite and provide risk management and professional reinsurance services for
a wide variety of insurance coverages in the property and liability, mortgage
guaranty, title and life and disability insurance fields. In particular, the
Corporation's subsidiaries provide specialty insurance programs to the
transportation, coal and energy services, consumer and mortgage credit, banking,
agricultural, and housing industries, and to a variety of other manufacturing
and service companies. See "Business" in the accompanying Prospectus.
THE OFFERING
<TABLE>
<S> <C>
Debentures Offered Hereby.................... $115,000,000 principal amount of % Debentures due
, 2007.
Payment of Interest.......................... Interest on the Debentures, at the rate of % per
annum, is payable semi-annually on and
of each year, commencing ,
1997.
Redemption................................... The Debentures are not redeemable prior to maturity
and are not entitled to any sinking fund.
Ranking...................................... The Debentures are senior in right of payment to all
subordinated indebtedness of the Corporation and pari
passu in right of payment with all Senior Indebtedness
(as defined in the accompanying Prospectus) of the
Corporation.
Use of Proceeds.............................. To repay commercial paper and for other general
corporate purposes.
NYSE Symbol.................................. ORI 07.
</TABLE>
S-2
<PAGE> 3
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEARS ENDED DECEMBER 31,
------------------- ----------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
(ALL DOLLAR AMOUNTS ARE EXPRESSED IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS DATA:
Net Premiums Earned.......... $ 345.7 $ 320.1 $1,360.4 $1,251.7 $1,282.9 $1,246.0 $1,103.5
Title, Escrow, and Other
Fees....................... 31.8 33.6 147.2 122.2 140.3 199.7 188.4
Net Investment Income........ 67.7 65.5 260.5 251.9 227.5 220.7 221.5
Realized Investment Gains.... 10.8 5.8 15.1 49.7 7.7 40.2 62.8
Other Income................. 5.7 5.7 20.4 20.2 20.4 29.5 40.7
-------- -------- -------- -------- -------- -------- --------
Net Revenues............... 461.8 430.9 1,803.9 1,695.9 1,679.0 1,736.3 1,617.0
Income Before Cumulative
Effect of Accounting
Changes and Extraordinary
Item....................... 65.2 53.4 234.8 212.7 151.0 166.4 174.7
Cumulative Effect of
Accounting Changes......... -- -- -- -- -- 8.6 --
Extraordinary Item........... -- (3.3) (4.4) -- -- -- --
Net Income................... 65.2 50.0 230.3 212.7 151.0 175.1 174.7
BALANCE SHEET DATA:
Cash and Invested Assets..... $4,541.2 $4,347.9 $4,521.8 $4,415.2 $3,906.4 $3,723.0 $3,332.5
Total Assets................. 6,662.1 6,541.7 6,656.2 6,593.5 6,262.9 6,098.3 4,141.6
Debt and Debt
Equivalents(1)............. 164.1 157.3 154.0 320.5 314.7 282.7 277.8
Preferred Stock.............. 20.3 72.7 20.6 72.5 75.4 78.0 80.8
Common Shareholders'
Equity..................... 1,916.0 1,742.7 1,900.0 1,612.5 1,329.3 1,256.9 1,084.9
RATIOS:
Ratio of Earnings to Fixed
Charges(2)................. 47.4x 16.6x 32.4x 14.6x 12.3x 13.0x 14.7x
Pro Forma Ratio of Earnings
to Fixed Charges(3)........
</TABLE>
- ---------------
(1) Includes convertible preferred stock classified as a debt equivalent.
(2) See "Ratio of Earnings to Fixed Charges" in the accompanying Prospectus.
(3) Adjusted to give effect to the sale of the Debentures offered hereby and the
redemption of approximately $112.0 million of commercial paper with the
proceeds of this offering.
Failure of amounts to add to totals shown is due to rounding.
S-3
<PAGE> 4
USE OF PROCEEDS
The net proceeds to the Corporation from the sale of the Debentures offered
hereby, estimated at $114.0 million, assuming an offering price of $1,000 per
Debenture and after deducting estimated underwriting discounts and commissions
and offering expenses, will be used to retire approximately $112.0 million of
outstanding commercial paper (with an average yield of 5.77%) and for other
general corporate purposes. Until so used, such proceeds may be invested in
marketable securities. The Corporation may from time to time issue or have
outstanding additional commercial paper and incur other short-term indebtedness
for general corporate purposes. See "Capitalization."
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Corporation as of March 31, 1997, and as adjusted to give effect to (1) the
issuance of the Debentures offered hereby (at an assumed offering price of
$1,000 per Debenture and after deducting estimated underwriting discounts and
commissions and offering expenses) and (2) the retirement of the Corporation's
commercial paper with the proceeds of this offering as described in "Use of
Proceeds." The Corporation had approximately $112.0 million of commercial paper
outstanding as of June 12, 1997.
<TABLE>
<CAPTION>
MARCH 31, 1997
----------------------
ACTUAL AS ADJUSTED
-------- -----------
(UNAUDITED)
(IN MILLIONS)
<S> <C> <C>
Debt and Debt Equivalents(1):
Due within one year....................................... $ 148.2 $ 36.2
Due after one year........................................ 15.9 130.9
-------- --------
Total Debt........................................ 164.1 167.1
-------- --------
Redeemable Convertible Preferred Stock...................... 19.3 19.3
Convertible Preferred Stock................................. 1.0 1.0
-------- --------
Total Preferred Stock............................. 20.3 20.3
-------- --------
Common Shareholders' Equity:
Common Stock.............................................. 96.1 96.1
Additional Paid-In Capital................................ 577.4 577.4
Net Unrealized Appreciation of Securities................. 18.2 18.2
Retained Earnings......................................... 1,277.9 1,277.9
Treasury Stock............................................ (53.6) (53.6)
-------- --------
Total Common Shareholders' Equity................. 1,916.0 1,916.0
-------- --------
Total Capitalization.............................. $2,100.6 $2,103.4
======== ========
</TABLE>
- ---------------
(1) Includes $8.8 million of convertible preferred stock classified as a debt
equivalent. Amount due within one year includes approximately $144.2 million
of commercial paper.
Failure of amounts to add to totals shown is due to rounding.
S-4
<PAGE> 5
DESCRIPTION OF DEBENTURES
The following description of the particular terms of the Debentures offered
hereby supplements, and to the extent inconsistent therewith, replaces, the
description of the general terms and provisions of the Debt Securities set forth
in the accompanying Prospectus, to which description reference is hereby made.
Any summaries of certain provisions contained in the Indenture, dated as of
August 15, 1992 between the Corporation and Wilmington Trust Company, as trustee
(the "Trustee"), as supplemented by Supplemental Indenture No. 1 thereto, dated
, 1997 (the "Supplemental Indenture") and the resolutions of the Board
of Directors approved effective December 5, 1996 relating to the Debentures (as
supplemented, the "Indenture"), do not purport to be complete and are qualified
in their entirety by express reference to the provisions of the Indenture.
Capitalized terms not otherwise defined herein shall have the meanings given to
them in the accompanying Prospectus. See "Description of Debt Securities" in the
accompanying Prospectus.
GENERAL
The Debentures will be unsecured senior obligations of the Corporation,
will be limited to $115,000,000 aggregate principal amount and will mature on
, 2007. The Corporation will pay interest on the Debentures
semi-annually on and of each year, commencing
, 1997, at the rate of % per annum. Interest will accrue from the date of
original issuance of the Debentures. The Indenture does not limit the amount of
indebtedness that may be incurred by the Corporation.
RANKING
The Debentures are Senior Debt Securities, as such term is defined in the
Indenture. The payment of principal of and interest on the Debentures is senior
in right of payment to all subordinated indebtedness of the Corporation and pari
passu in right of payment with all Senior Indebtedness of the Corporation. See
"Description of Debt Securities -- Senior Debt Securities" in the accompanying
Prospectus.
REDEMPTION
The Debentures may not be redeemed prior to maturity and are not entitled
to any sinking fund.
CERTAIN MODIFICATIONS TO THE INDENTURE AND COVENANTS APPLICABLE TO DEBENTURES
As modified by the Supplemental Indenture, the Indenture defines the term
"Principal Insurance Subsidiary" to mean each of Old Republic Insurance Company,
Old Republic National Title Insurance Company, Republic Mortgage Insurance
Company, Bituminous Casualty Corporation and Great West Casualty Company and any
successor to all or a principal part of the business or properties of any
thereof.
Limitation on Liens on Stock of Principal Insurance Subsidiaries. The
Indenture provides that the Corporation will not, nor will it permit any
Principal Insurance Subsidiary to, issue, assume or guarantee any indebtedness
for borrowed money (hereinafter referred to as "Indebtedness") secured by a
mortgage, security interest, pledge, lien or other encumbrance upon any share of
stock of any Principal Insurance Subsidiary without effectively providing that
the Debentures (together with, if the Corporation shall so determine, any other
indebtedness of or guarantee by the Corporation ranking equally with the
Debentures and then existing or thereafter created) shall be secured equally and
ratably with such Indebtedness. (Section 1005).
Limitation on Issuance or Disposition of Stock of Principal Insurance
Subsidiaries. The Indenture, as modified by the Supplemental Indenture, provides
that the Corporation will not, and will not permit any Principal Insurance
Subsidiary to, issue, sell, assign, transfer or otherwise dispose of, directly
or indirectly, any of the capital stock (other than non-voting, non-convertible
preferred stock) of any Principal Insurance Subsidiary, except for (i)
directors' qualifying shares; (ii) sales or other dispositions to the
Corporation or one or more wholly-owned subsidiaries; (iii) the disposition of
capital stock of any Principal Insurance Subsidiary for consideration which is
at least equal to the fair value of such capital stock, as determined by the
Board of Directors; (iv) an issuance, sale, assignment, transfer or other
disposition which, in the opinion of the Board of Directors, is in the best
interests of the Corporation and the Principal Insurance Subsidiaries; or (v) an
S-5
<PAGE> 6
issuance, sale, assignment, transfer or other disposition which is required in
order to comply with an order of a court or regulatory authority of competent
jurisdiction, other than an order issued at the request of the Corporation or
any Principal Insurance Subsidiaries. No such issuance, sale, assignment,
transfer or other disposition shall be made, however, if it would result in an
Event of Default or an occurrence which, after notice or lapse of time or both,
would become an Event of Default. (Section 1006).
BOOK-ENTRY SYSTEM
The Depository Trust Company, New York, NY, will act as securities
depository for the Debentures. The Debentures will be issued as fully-registered
securities registered in the name of Cede & Co. (DTC's partnership nominee). One
fully-registered Debenture certificate will be issued for the Debentures in the
aggregate principal amount of such issue, and will be deposited with DTC.
DTC has advised the Corporation that it is a limited-purpose trust company
organized under the New York Banking Law, a "banking organization" within the
meaning of the New York Banking Law, a member of the Federal Reserve System, a
"clearing corporation" within the meaning of the New York Uniform Commercial
Code, and a "clearing agency" registered pursuant to the provisions of Section
17A of the Securities Exchange Act of 1934. DTC holds securities that its
participants ("Participants") deposit with DTC. DTC also facilitates the
settlement among Participants of securities transactions, such as transfers and
pledges, in deposited securities through electronic computerized book-entry
changes in Participants' accounts, thereby eliminating the need for physical
movement of securities certificates. "Direct Participants" include securities
brokers and dealers, banks, trust companies, clearing corporations, and certain
other organizations. DTC is owned by a number of its Direct Participants and by
the New York Stock Exchange, Inc., the American Stock Exchange, Inc., and the
National Association of Securities Dealers, Inc. Access to the DTC system is
also available to others such as securities brokers and dealers, banks, and
trust companies that clear through or maintain a custodial relationship with a
Direct Participant, either directly or indirectly ("Indirect Participants"). The
Rules applicable to DTC and its Participants are on file with the Securities and
Exchange Commission.
Purchases of Debentures under the DTC system must be made by or through
Direct Participants, which will receive a credit for the Debentures on DTC's
records. The ownership interest of each actual purchaser of each Debenture
("Beneficial Owner") is in turn to be recorded on the Direct and Indirect
Participants' records. Beneficial Owners will not receive written confirmation
from DTC of their purchase, but Beneficial Owners are expected to receive
written confirmations providing details of the transaction, as well as periodic
statements of their holdings, from the Direct or Indirect Participant through
which the Beneficial Owner entered into the transaction. Transfers of ownership
interests in the Debentures are to be accomplished by entries made on the books
of Participants acting on behalf of Beneficial Owners. Beneficial Owners will
not receive certificates representing their ownership interests in Debentures
except in the event that use of the book-entry system for the Debentures is
discontinued.
To facilitate subsequent transfers, all Debentures deposited by
Participants with DTC are registered in the name of DTC's partnership nominee,
Cede & Co. The deposit of Debentures with DTC and their registration in the name
of Cede & Co. effect no change in beneficial ownership. DTC has no knowledge of
the actual Beneficial Owners of the Debentures; DTC's records reflect only the
identity of the Direct Participants to whose accounts such Debentures are
credited, which may or may not be the Beneficial Owners. The Participants will
remain responsible for keeping account of their holdings on behalf of their
customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Principal and interest payments on the Debentures will be made in
immediately available funds by the Corporation to DTC. DTC's practice is to
credit Direct Participants' accounts on a payable date in accordance with their
respective holdings shown on DTC's records unless DTC has reason to believe that
it will not receive payment on a payable date. Payments by Participants to
Beneficial Owners will be governed by
S-6
<PAGE> 7
standing instructions and customary practices, as is the case with securities
held for the accounts of customers in bearer form or registered in "street
name," and will be the responsibility of such Participant and not of DTC or the
Corporation, subject to any statutory or regulatory requirements as may be in
effect from time to time. Payment of principal and interest to DTC is the
responsibility of the Corporation, disbursement of such payments to Direct
Participants shall be the responsibility of DTC, and disbursement of such
payments to the Beneficial Owners shall be the responsibility of Direct and
Indirect Participants.
DTC may discontinue providing its services as securities depository with
respect to the Debentures at any time by giving reasonable notice to the
Corporation. Under such circumstances, in the event that a successor securities
depository is not obtained, Debenture certificates are required to be printed
and delivered.
The Corporation may decide to discontinue use of the system of book-entry
transfers through DTC (or a successor securities depository). In that event,
Debenture certificates will be printed and delivered.
Each of the Underwriters is a Direct Participant of DTC.
None of the Corporation, the Trustee or any agent for payment on or
registration of transfer or exchange of any Global Debenture will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial interest in such Global Debenture or for
maintaining, supervising or reviewing any records relating to such beneficial
interest.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Corporation believes to be reliable, but
the Corporation takes no responsibility for the accuracy thereof.
S-7
<PAGE> 8
UNDERWRITING
The Underwriters named below have severally agreed, subject to the terms
and conditions contained in the Underwriting Agreement, to purchase from the
Corporation the principal amount of Debentures set forth below opposite their
respective names:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OF
UNDERWRITER DEBENTURES
----------- ------------
<S> <C>
Lehman Brothers Inc. .......................................
EVEREN Securities, Inc. ....................................
J.P. Morgan Securities Inc. ................................
------------
Total............................................. $115,000,000
============
</TABLE>
The Corporation is obligated to sell, and the Underwriters are obligated to
purchase, all of the Debentures offered hereby if any are purchased.
The Underwriters have advised the Corporation that they propose to offer
the Debentures initially at the public offering price set forth on the cover
page of this Prospectus Supplement; that the Underwriters may allow to selected
dealers a concession of % of the principal amount per Debenture; and that
such dealers may reallow a concession of % of the principal amount per
Debenture to certain other dealers. After the initial public offering, the
offering price and the concessions may be changed by the Underwriters.
The Corporation has agreed to indemnify the several Underwriters or
contribute to losses arising out of certain liabilities, including liabilities
under the Securities Act of 1933, as amended.
The Underwriters have in the past and may in the future provide investment
banking and other related services to the Corporation in the ordinary course of
business. In the ordinary course of their respective businesses, affiliates of
J.P. Morgan Securities Inc. have engaged, and may in the future engage, in
commercial banking transactions with the Corporation and its affiliates. Morgan
Guaranty Trust Company of New York, an affiliate of J.P. Morgan Securities Inc.,
is currently a lender to an affiliate of the Corporation under a revolving
credit agreement.
The Debentures are a new issue of securities with no established trading
market. The Corporation has been advised by the Underwriters that they intend to
make a market in the Debentures but are not obligated to do so and may
discontinue any market making at any time without notice. No assurance can be
given as to the liquidity of the trading market for the Debentures.
LEGAL OPINIONS
Certain legal matters in connection with the Debentures will be passed upon
for the Corporation by Spencer LeRoy, General Counsel for the Corporation, and
for the Underwriters by Gardner, Carton & Douglas, 321 North Clark Street,
Chicago, Illinois 60610. As of June 10, 1997, Mr. LeRoy beneficially owned
approximately 7,570 shares of Common Stock of the Corporation and holds options
to purchase 68,750 shares of Common Stock of the Corporation.
S-8
<PAGE> 9
PROSPECTUS
[OLD REPUBLIC INTERNATIONAL CORPORATION LOGO]
DEBT SECURITIES
Old Republic International Corporation (the "Corporation") may from time to
time offer Debt Securities consisting of debentures, notes and/or other
unsecured evidences of indebtedness in one or more series at an aggregate
initial offering price not to exceed $225,000,000. The Debt Securities may be
senior or subordinate in priority of payment, and Debt Securities may be issued
as convertible Debt Securities which, unless previously redeemed or otherwise
purchased or acquired, will be convertible at any time during the specified
conversion period into shares of the Corporation's Common Stock, par value $1.00
per share. The Debt Securities may be offered as separate series in amounts, at
prices and on terms to be determined at the time of sale and to be set forth in
supplements to this Prospectus.
Certain terms of the Debt Securities in respect of which this Prospectus is
being delivered, including, where applicable, the specific designation,
aggregate principal amount, denominations, maturity or the method of
determination thereof, interest rate (which may be fixed or variable) and time
of payment of interest, provisions for conversion into the Corporation's Common
Stock, provisions for redemption, if any, mandatory sinking or purchase fund
requirements, if any, and the other terms in connection with the offering and
sale of the Debt Securities are set forth in the accompanying Prospectus
Supplement ("Prospectus Supplement").
The Corporation may sell Debt Securities in or through underwriters or
dealers and also may sell Debt Securities directly to other purchasers or
through agents. The names of any underwriters, dealers or agents involved in the
sale of the Debt Securities, and the applicable agent's commission, dealer's
purchase price or underwriter's discount, will be set forth in the Prospectus
Supplement. The net proceeds to the Corporation from such sale will also be set
forth in the Prospectus Supplement. See "Plan of Distribution."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
August 18, 1992
<PAGE> 10
TO NORTH CAROLINA INVESTORS: THE COMMISSIONER OF INSURANCE OF THE STATE OF
NORTH CAROLINA HAS NEITHER APPROVED OR DISAPPROVED THIS OFFERING, NOR HAS THE
COMMISSIONER RULED ON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
AVAILABLE INFORMATION
The Corporation is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Corporation can be inspected and
copied at the Commission's Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549, as well as at the Regional Offices of the Commission
located at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and
Seven World Trade Center, New York, New York 10048. Copies of such material can
also be obtained by mail from the Public Reference Section of the Commission at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, upon
payment of the fees prescribed by the rules and regulations of the Commission.
In addition, electronically filed documents, including reports, proxy statements
and other information concerning the Corporation can be obtained from the
Commission's home page on the Internet (http://www.sec.gov). Reports, proxy
statements and other information concerning the Corporation can also be
inspected at the offices of the New York Stock Exchange, 20 Broad Street, New
York, New York 10005.
The Corporation has filed with the Commission a Registration Statement
under the Securities Act of 1933, as amended, with respect to the Debt
Securities being offered hereby. This Prospectus does not contain all the
information set forth in the Registration Statement and the exhibits thereto,
certain portions of which have been omitted as permitted by the rules and
regulations of the Commission. For further information with respect to the
Corporation and the Debt Securities offered hereby, reference is made to the
Registration Statement, including the exhibits thereto, copies of which may be
obtained upon payment of the prescribed fees or examined without charge at the
public reference facilities of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Statements contained in this Prospectus as to the
contents of any contract or other document are not necessarily complete, and in
each instance reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement, each statement being
qualified in all respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, heretofore filed by the Corporation with the
Commission pursuant to the Exchange Act, are hereby incorporated by reference,
except as superseded or modified herein:
1. The Corporation's Annual Report on Form 10-K for the year ended December
31, 1991, as amended under cover of two Forms 8 filed on April 30, 1992
and one Form 8 filed on May 8, 1992;
2. The Corporation's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1992 and June 30, 1992; and
3. The description of the Corporation's Common Stock contained in the
Corporation's Registration Statement on Form 8-A filed on August 29,
1990, including any amendment or report filed for the purpose of
updating such description.
Each document filed by the Corporation pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act after the date of this Prospectus and prior to
the termination of the offering of the Debt Securities shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such document. Any statement incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Prospectus to
the extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Prospectus.
THE CORPORATION WILL PROVIDE WITHOUT CHARGE TO EACH PERSON TO WHOM THIS
PROSPECTUS IS DELIVERED, UPON WRITTEN OR ORAL REQUEST, A COPY OF ANY OR ALL OF
THE FOREGOING DOCUMENTS INCORPORATED HEREIN BY REFERENCE (OTHER THAN EXHIBITS
UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE IN SUCH
DOCUMENTS). REQUESTS FOR SUCH DOCUMENTS SHOULD BE DIRECTED TO OLD REPUBLIC
INTERNATIONAL CORPORATION, 307 NORTH MICHIGAN AVENUE, CHICAGO, ILLINOIS 60601,
ATTENTION: CORPORATE SECRETARY (TELEPHONE (312) 346-8100).
2
<PAGE> 11
PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by the
detailed information and financial statements, including the notes thereto,
appearing in the documents incorporated herein by reference or elsewhere in this
Prospectus. All share and per share data in this Prospectus have been adjusted
for all stock dividends and splits declared through the date of this Prospectus.
THE CORPORATION
Old Republic International Corporation (the "Corporation") is an insurance
holding company which ranks among the 50 largest publicly-held, independent
insurance groups in the United States. The Corporation's subsidiaries market,
underwrite and provide risk management and professional reinsurance services for
a wide variety of insurance coverages in the property and liability, title,
mortgage guaranty, and life and disability insurance fields. In particular, they
provide specialty insurance programs to the transportation, coal and energy
services, consumer and mortgage credit, banking, agricultural, and housing
industries, and to a variety of other manufacturing and service companies. See
"Business."
THE OFFERING
Securities Offered......... $225,000,000 aggregate initial offering price of
Debt Securities to be issued from time to time in
one or more series (the "Debt Securities").
Use of Proceeds............ Unless otherwise specified in a Prospectus
Supplement, to repay outstanding indebtedness,
including commercial paper, to add to the capital
of the Corporation's insurance subsidiaries and
for other general corporate purposes.
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEARS ENDED DECEMBER 31,
------------------- ----------------------------------------------------
1992 1991 1991 1990 1989 1988 1987
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
(ALL DOLLAR AMOUNTS, EXCEPT COMMON SHARE DATA, ARE EXPRESSED IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS DATA:
Net Premiums and Fees Earned..... $ 580.7 $ 523.9 $1,113.4 $1,013.4 $ 951.3 $ 911.4 $ 927.3
Net Investment and Other
Income......................... 132.4 114.8 239.9 228.2 223.6 190.7 167.2
Realized Investment Gains........ 13.6 7.8 21.1 1.0 6.9 5.3 10.2
Net Revenues................. 726.8 646.6 1,374.5 1,242.7 1,181.9 1,107.5 1,104.8
Net Income....................... 76.4 58.9 131.0 104.6 98.9 50.9 102.8
COMMON SHARE DATA(1):
Net Income Per Share:
Primary........................ $ 1.38 $ 1.12 $ 2.48 $ 2.02 $ 1.93 $ 0.95 $ 2.00
Fully Diluted.................. 1.32 1.07 2.36 1.93 1.83 0.94 1.95
Cash Dividends................... 0.193 0.179 0.37 0.34 0.32 0.31 0.29
Book Value....................... 20.07 17.55 18.81 16.55 14.94 13.29 12.45
RATIOS:
Ratio of Earnings to Fixed
Charges(2)..................... 12.5x 9.5x 10.3x 7.9x 7.0x 3.7x 12.8x
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1992
-------------
(UNAUDITED)
<S> <C>
FINANCIAL POSITION SUMMARY:
Total Assets................................................ $3,871.1
Debt and Debt Equivalents(3)................................ 254.0
Preferred Stock............................................. 83.8
Common Shareholders' Equity................................. 947.9
</TABLE>
- ---------------
(1) Common share data have been retroactively adjusted for all stock dividends
and splits declared through the date of this Prospectus.
(2) See "Ratio of Earnings to Fixed Charges" herein.
(3) Includes $19.6 million of convertible preferred stock classified as a debt
equivalent.
3
<PAGE> 12
THE CORPORATION
Old Republic International Corporation is a Chicago-based insurance holding
company which ranks among the 50 largest publicly-held, independent insurance
groups in the United States. Its oldest insurance subsidiary has been in
business continuously since 1887. The Corporation's subsidiaries market,
underwrite and provide risk management and professional reinsurance services for
a wide variety of insurance coverages in the property and liability, title,
mortgage guaranty, and life and disability insurance fields. The Corporation
primarily serves the insurance and related needs of commercial and financial
enterprises and governmental units. In particular, it provides specialty
insurance programs to the transportation, coal and energy services, consumer and
mortgage credit, banking, agricultural, and housing industries, and to a variety
of other manufacturing and service companies.
Old Republic's business segments are organized as the General Insurance,
Title Insurance, Mortgage Guaranty, and Life Insurance Groups, and references
herein to such groups apply to the Corporation's subsidiaries engaged in the
respective segments of business. "Old Republic" or the "Corporation" herein
refers to Old Republic International Corporation and its subsidiaries as the
context requires.
The Corporation's General Insurance Group provides property and liability
insurance to commercial clients and is the major contributor to consolidated
operating income. Workers' compensation insurance is the largest type of
coverage underwritten by the General Insurance Group, accounting for 38.4% of
the Group's direct premiums written in 1991. The remaining premiums written by
the General Insurance Group are derived largely from a wide variety of
coverages, including commercial automobile and general liability insurance, loan
credit guaranty insurance, insurance against loss of crops from hail storms, and
surety bonds. In the past decade, the General Insurance Group's operations have
been expanded to cover certain specialty lines such as aviation, directors' and
officers' liability, and errors and omissions insurance.
The Corporation frequently uses risk sharing formulas in many parts of its
property and liability and life and disability businesses to reduce its risk of
underwriting loss. Approximately 36% of the General Insurance Group's gross
premiums written in 1991 was derived from business administered through risk
sharing formulas. Among the techniques used are retrospective rating plans and
the utilization of captive insurance companies owned by assureds or producers.
Pursuant to retrospective arrangements, premium refunds are made or additional
premiums are collected in the event loss costs are lower or higher than
anticipated. Through captive insurers, the Corporation's assureds or producers
accept a proportional share of coverages underwritten by Old Republic and thus
share in the loss experience on the risk.
The Corporation believes that its Title Insurance Group and Mortgage
Guaranty Group each rank among the top five in the country on the basis of
premiums and related service fee revenues. Title and mortgage guaranty business
is originated by savings and loan associations, other lenders, and financial
intermediaries such as mortgage loan brokers and real estate agents.
The Corporation's Life Insurance Group is a writer of credit life and
disability insurance. In the late 1940's, the Corporation pioneered the concept
of mass-marketing consumer credit life and disability insurance through banks,
finance companies, agricultural cooperatives, automobile dealers, and other
financial intermediaries. In addition, the Life Insurance Group has experienced
moderate growth in the sale of term life insurance products.
The Corporation's principal executive offices are located at 307 North
Michigan Avenue, Chicago, Illinois 60601. Its telephone number is (312)
346-8100.
4
<PAGE> 13
USE OF PROCEEDS
Unless otherwise specified in a Prospectus Supplement, the Corporation
intends to use the net proceeds from the sale of the Debt Securities offered
hereby to repay outstanding indebtedness, including commercial paper, to add to
the capital of the Corporation's insurance subsidiaries and for other general
corporate purposes. The Corporation does not presently anticipate issuing
greater than $115 million initial offering price of Debt Securities during the
following nine months.
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Corporation as of June 30, 1992.
<TABLE>
<CAPTION>
JUNE 30,
1992
--------
(UNAUDITED)
(IN MILLIONS)
<S> <C>
Debt and Debt Equivalents (1): Due within one year.......... $ 86.1
Due after one year........... 167.9
--------
Total Debt........................................... 254.0
--------
Redeemable Convertible Preferred Stock...................... 20.9
Convertible Preferred Stock................................. 5.4
Cumulative Preferred Stock.................................. 57.5
--------
Total Preferred Stock................................ 83.8
--------
Common Shareholders' Equity:
Common Stock.............................................. 52.9
Additional Paid-In Capital................................ 397.5
Net Unrealized Appreciation of Equity Securities.......... 4.2
Retained Earnings......................................... 524.5
Treasury Stock............................................ (31.3)
--------
Total Common Shareholders' Equity.................... 947.9
--------
Total Capitalization................................. $1,285.8
========
</TABLE>
- ---------------
(1) Includes $19.6 million of convertible preferred stock classified as a debt
equivalent.
Failure of amounts to add to totals shown is due to rounding.
Each state has established minimum capital and surplus requirements to
conduct an insurance business. All of the Corporation's subsidiaries meet or
exceed these requirements, which vary from state to state.
5
<PAGE> 14
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data for Old Republic has
been derived from the historical consolidated financial statements of Old
Republic and its subsidiaries. The data is qualified in its entirety by, and
should be read in conjunction with, the Old Republic consolidated financial
statements and other financial information with respect to Old Republic included
in its Annual Report on Form 10-K, as amended, for the year ended December 31,
1991, and Quarterly Report on Form 10-Q for the six months ended June 30, 1992,
incorporated herein by reference.
<TABLE>
<CAPTION>
(ALL DOLLAR AMOUNTS, EXCEPT COMMON SHARE DATA, ARE EXPRESSED IN MILLIONS)
----------------------------------------------------------------------------
AS OF AS OF DECEMBER 31,
JUNE 30, ------------------------------------------------------------
1992 1991 1990 1989 1988 1987
-------- -------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL POSITION:
Cash and Invested Assets(a)........................ $3,024.2 $2,933.7 $2,614.7 $2,447.2 $2,340.6 $2,144.0
Other Assets....................................... 846.9 779.5 713.7 676.2 664.8 653.6
Total Assets............................... 3,871.1 3,713.2 3,328.5 3,123.5 3,005.5 2,797.7
Liabilities, Other than Debt....................... 2,585.3 2,503.0 2,318.3 2,215.5 2,201.4 2,072.4
Debt and Debt Equivalents.......................... 254.0 247.6 220.7 211.7 212.1 133.9
Total Liabilities.......................... 2,839.3 2,750.6 2,539.1 2,427.2 2,413.5 2,206.3
Redeemable Convertible Preferred Stock............. 20.9 17.1 15.4 21.4 18.0 15.5
Convertible Preferred Stock........................ 5.4 6.1 9.0 11.6 15.9 58.5
Cumulative Preferred Stock......................... 57.5 57.5 -- -- -- --
Common Shareholders' Equity........................ 947.9 881.7 764.8 663.1 558.0 517.3
Total Capitalization(b)............................ $1,285.8 $1,210.2 $1,010.1 $ 908.0 $ 804.0 $ 725.2
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEARS ENDED DECEMBER 31,
--------------------- ------------------------------------------------------------
1992 1991 1991 1990 1989 1988 1987
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS DATA:
Net Premiums and Fees Earned.......... $ 580.7 $ 523.9 $1,113.4 $1,013.4 $ 951.3 $ 911.4 $ 927.3
Net Investment and Other Income....... 132.4 114.8 239.9 228.2 223.6 190.7 167.2
Realized Investment Gains............. 13.6 7.8 21.1 1.0 6.9 5.3 10.2
-------- -------- -------- -------- -------- -------- --------
Net Revenues.................. 726.8 646.6 1,374.5 1,242.7 1,181.9 1,107.5 1,104.8
Benefits, Claims, Settlement Expenses
and Dividends....................... 348.1 328.4 691.8 632.9 594.1 643.8 602.8
Underwriting and Other Expenses....... 272.9 238.3 507.3 476.9 468.4 424.8 402.6
Income Taxes (Credits)(c)............. 29.9 21.6 45.2 28.9 21.2 (9.9) (2.8)
-------- -------- -------- -------- -------- -------- --------
Net Income.................... $ 76.4 $ 58.9 $ 131.0 $ 104.6 $ 98.9 $ 50.9 $ 102.8
======== ======== ======== ======== ======== ======== ========
COMMON SHARE DATA(D):
Net Income Per Share:
Primary(e).......................... $ 1.38 $ 1.12 $ 2.48 $ 2.02 $ 1.93 $ 0.95 $ 2.00
Fully Diluted(f).................... $ 1.32 $ 1.07 $ 2.36 $ 1.93 $ 1.83 $ 0.94 $ 1.95
Average Common and Equivalent Shares
Outstanding Primary................. 53,014,679 52,299,998 52,408,404 51,206,038 50,480,922 48,475,328 48,809,048
Diluted................. 56,931,252 56,219,532 56,480,042 55,524,178 55,203,598 50,612,258 53,068,956
Dividends: Cash....................... $ 0.193 $ 0.179 $ 0.37 $ 0.34 $ 0.32 $ 0.31 $ 0.29
100% 10% 10% 5% 5% 5% 10%
Book Value............................ $ 20.07 $ 17.55 $ 18.81 $ 16.55 $ 14.94 $ 13.29 $ 12.45
</TABLE>
- ---------------
(a) Consists of cash, investments and investment income due and accrued.
(b) Total capitalization consists of debt and debt equivalents, preferred stock
and common shareholders' equity.
(c) In the year ended December 31, 1987, income taxes were decreased, and net
income was correspondingly increased, by $9.8 million ($.20 per share) as a
result of a one time deferred income tax credit for Old Republic's Title
Insurance Group, and in the years ended December 31, 1987, 1988, 1989, 1990,
and 1991, and the six months ended June 30, 1991 and 1992, income taxes were
decreased, and net income correspondingly increased, by $18.6 million ($.38
per share), $10.4 million ($.22 per share), $7.0 million ($.14 per share),
$5.5 million ($.11 per share), $3.6 million ($.07 per share), $1.8 million
($.04 per share) and $.9 million ($.02 per share), respectively, as a result
of amortized fresh start deferred income tax credits, all of which resulted
from changes in tax regulations effective January 1, 1987.
(d) Common share data have been retroactively adjusted for all stock dividends
and splits declared through the date of this Prospectus.
(e) Calculated after deduction of preferred stock dividends of $1.3 million in
1991, $1.5 million in 1990, $1.8 million in 1989, $5.2 million in 1988 and
$5.1 million in 1987. For the six months ended June 30, 1992 and 1991, such
deductions amount to $3.0 million and $.5 million, respectively.
(f) Calculated after deduction of preferred stock dividends of $.2 million in
1991, $0 in each of 1990 and 1989, $3.3 million in 1988 and $.1 million in
1987. For the six months ended June 30, 1992 and 1991, such deductions
amount to $2.5 million and $0, respectively.
6
<PAGE> 15
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the historical ratio of earnings to fixed
charges for the Corporation for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEARS ENDED DECEMBER 31,
- -------------- --------------------------------
1992 1991 1991 1990 1989 1988 1987
- ---- ---- ---- ---- ---- ---- ----
<C> <C> <C> <C> <C> <C> <C>
12.5x 9.5x 10.3x 7.9x 7.0x 3.7x 12.8x
</TABLE>
The ratio of earnings to fixed charges represents the number of times
interest expense was covered by pre-tax earnings before provision for interest
expense.
MANAGEMENT ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1992 AND 1991
FINANCIAL POSITION
The Corporation's balance sheet at June 30, 1992 reflects increases in
assets, liabilities, and common shareholders' equity of 4%, 3%, and 8%,
respectively, when compared to similar amounts at December 31, 1991. For the
first six months of 1992, Old Republic continued to maintain a relatively high
position in short-term investments to accommodate the cash, investment strategy,
and other operating needs of its business. Short-term investments as a
percentage of invested assets were 8% at June 30, 1992 versus 10% as of December
31, 1991. Old Republic's policy is to invest primarily in investment grade,
marketable securities. Approximately 4% of total fixed maturity securities
owned, excluding short-term investments, are currently classified as not rated
or below investment grade, and include securities which when purchased were
investment grade, non-investment grade convertible securities, and other
non-rated securities such as small issues of tax-exempt bonds which are
typically not rated by independent agencies. As of June 30, 1992, investments in
default as to principal and/or interest amounted to approximately $23.6 million
compared to $21.4 million at December 31, 1991, and amounted to less than 1% of
consolidated assets at June 30, 1992.
The rise in the common shareholders' equity account for the six months
ended June 30, 1992 was due principally to the retention of earnings in excess
of dividend charges applicable to outstanding preferred and common shares.
Consolidated cash flow from operations was positive in the first half of
1992. The parent company's cash requirements were met primarily by dividends
paid by its subsidiaries. The insurance subsidiaries' ability to pay cash
dividends to the parent company is generally restricted by law or subject to
approval of the insurance regulatory authorities of the states in which they are
domiciled. Additionally, the terms of guaranties by the Corporation of bank
loans to the trustee of the Corporation's Employees Savings and Stock Ownership
Plan require the Corporation to maintain a minimum consolidated tangible net
worth and restrict the amount of debt the Corporation may incur, both of which
covenants are being met.
Old Republic's capitalization at June 30, 1992 amounted to approximately
$1.28 billion and consisted of debt and debt equivalents of $254.0 million,
redeemable convertible preferred stock of $20.9 million (excluding $19.6 million
of such stock classified as a debt equivalent), convertible preferred stock of
$5.4 million, cumulative preferred stock of $57.5 million, and common
shareholders' equity of $947.9 million. During the first half of 1992,
short-term debt outstanding increased slightly.
RESULTS OF OPERATIONS
In this year's second quarter, the Corporation's Title Insurance Group
established loss charges of approximately $10.0 million to provide additional
funding in excess of normal claim provisions for various title escrow claims
currently in process of disposition. During the same quarter, the Corporation's
life insurance subsidiaries recorded previously unrecognized tax recoveries of
$1.1 million and related interest credits of
7
<PAGE> 16
approximately $11.8 million stemming from resolution of various long-standing
Internal Revenue Service disputes applicable to taxable years 1969 to 1981.
These charges and credits served to increase consolidated revenues by $11.8
million and claim costs by $10.0 million, and to record net current and deferred
income tax credits of $1.1 million. The overall effect of these items was to
increase net income by $2.9 million or $.05 per share in this year's second
quarter.
Revenues: Net premiums and fees earned in the first half of 1992 amounted
to $580.7 million and were 11% above the amount reported for the first half of
1991. For the second quarter of 1992, net premiums and fees earned amounted to
$322.4 million and were 13% above the amount reported for the second quarter of
1991. Mortgage Guaranty Group net premiums earned rose 43% in the first half of
1992 and 47% in the second quarter of 1992 due mainly to strong renewal
business, lower mortgage rates and increased market penetration. The Title
Insurance Group's net premiums and fees earned rose by 35% in the first half of
1992 and 25% in the second quarter of 1992, having also benefitted from the
stronger residential real estate market. The General Insurance Group's net
premiums earned increased less than 1% in the first half of 1992 and 7% in the
second quarter of 1992 despite the generally soft premium rate environment in
the property and liability industry.
Consolidated net investment income rose by 5% to $112.4 million in the
first half of 1992 and 4% to $55.7 million in the second quarter of 1992. During
this period, the Corporation continued its policy of investing substantially all
available funds principally in quality fixed maturity securities and money
market financial instruments with short to intermediate-term maturities. The
increase in net investment income was in part due to a higher level of invested
assets through positive operating cash flow. The average annual yield on
investments was 7.76% and 8.28% for the six months ended June 30, 1992 and 1991,
respectively.
While the Corporation's investment policies have not been designed to
maximize capital gains, in the first six months of 1992 such gains were higher
than those for the comparable period in 1991. Recent dispositions of securities
have, as in recent years, been caused principally by: (1) calls prior to
maturity by issuers, (2) a desire to reduce investments in tax-exempt
securities, (3) a desire to extend moderately the average life of the portfolio,
and (4) the Corporation's ongoing process of monitoring its investments with a
view toward maximizing the quality of its portfolio. For the first six months of
1992, approximately 55% of total dispositions represented maturities and early
calls of existing holdings; for the year 1991 these amounted to approximately
51% of all securities disposed.
Expenses: Consolidated benefit, claim and settlement costs, as a percentage
of net premiums and fees earned, were approximately 60% and 63% in the first six
months of 1992 and 1991, respectively. For the second quarter of each year these
ratios were 62% in 1992, and 61% in 1991. Claim costs for property and liability
coverages were approximately the same for each period, and, similarly, claim
ratios in the title and mortgage guaranty lines reflected basic stability.
The ratio of consolidated underwriting, acquisition and insurance expenses
to net premiums and fees earned was 45% and 43% in the first six months of 1992
and 1991, respectively. These ratios were 42% for the second quarters of both
years. Variations in these percentages between comparative periods basically
reflect changing patterns in the mix of business and the varying production
costs pertaining thereto.
Income from Operations: Income before taxes and other items increased by
33% in the first half of 1992 when compared to the same period one year ago; for
the second quarter of 1992, pre-tax income increased by 22% when compared to the
same period of 1991. The Corporation's General, Mortgage Guaranty and Title
Insurance segments generally reflected higher pre-tax operating earnings for the
1992 periods, while earnings in the Life Insurance segment, the Corporation's
smallest, were moderately lower.
The effective consolidated income tax rate was 28% and 27% in the first six
months of 1992 and 1991, respectively, and 30% and 31% in the second quarter of
1992 and 1991, respectively. The rates for each period reflect primarily the
varying proportions of pre-tax operating income derived from tax-sheltered
investment income (principally tax-exempt interest), on the one hand, and fully
taxable investment and underwriting and service income, on the other hand. In
recent years the Corporation has emphasized purchases of taxable investment
securities. Amortization of fresh start tax credits stemming from 1986 changes
in the Internal
8
<PAGE> 17
Revenue Code reduced consolidated income tax expense by $.9 million in the first
half of 1992 and by $1.8 million in the same period of 1991.
YEARS ENDED DECEMBER 31, 1991 AND 1990
FINANCIAL POSITION
Old Republic's financial position at December 31, 1991 reflected increases
in assets of 12%, liabilities of 8%, and common shareholders' equity of 15% when
compared to the immediately preceding year-end. As of December 31, 1991 and
1990, cash and invested assets represented 79% of consolidated assets.
Relatively high short-term maturity investment positions were maintained as of
the most recent year-ends to provide necessary liquidity for specific operating
needs and to enhance flexibility in investment strategy. Changes in short-term
investments reflect a large variety of seasonal and intermediate-term factors
including seasonal operating cash needs, investment strategy, and expectations
as to trends in interest yields. Accordingly, the future level of short-term
investments for the Corporation will vary and respond to the dynamics of these
factors and may, as a result, increase or decrease from current levels. During
1991 and 1990, the Corporation committed substantially all investable funds in
short to intermediate-term fixed maturity securities. Old Republic continues to
adhere to its long-term policy of investing primarily in investment grade,
marketable securities; the Corporation has not directed its investable funds to
so-called "junk bonds." As of December 31, 1991, the carrying value of fixed
maturity securities in default as to principal or interest was immaterial in
relation to consolidated assets or shareholders' equity.
Consolidated operations produced positive cash flows for the latest three
years. Among the Corporation's major segments, the Life Insurance Group
experienced moderately negative cash flow during the year 1989 due to higher
surrenders of annuity products relative to which guaranteed interest rates have
not been competitive. Sufficient liquidity currently exists to meet payments for
such policy surrenders. The parent holding company has met its liquidity and
capital needs for the past three years through dividends paid by its
subsidiaries and through the issuance of debt and equity securities. In December
1991, Old Republic issued $57.5 million of Series H Cumulative Preferred Stock.
Proceeds from the issuance of this preferred stock were used principally to add
to the capital of property and liability and title insurance subsidiaries.
Old Republic's capitalization of $1.21 billion at December 31, 1991
consisted of debt and debt equivalents of $247.6 million, redeemable convertible
preferred stock of $17.1 million (excluding $22.2 million of such stock
classified as a debt equivalent), convertible preferred stock of $6.1 million,
cumulative preferred stock of $57.5 million, and common shareholders' equity of
$881.7 million. The rise in the common shareholders' equity account during the
past three years primarily reflects the retention of earnings in excess of
dividends declared on outstanding preferred and common shares, and conversion of
preferred stock to common stock.
RESULTS OF OPERATIONS
Revenues: Net premiums and fees earned increased by 10%, 7% and 4% in 1991,
1990 and 1989, respectively. Property and liability insurance premium increases
were due to varying levels of growth in specialty areas of trucking, forestry,
building contractors, and risk management business. During the past three years,
the Corporation has cancelled certain other property and liability insurance
business not meeting its underwriting expectations. For the past three years,
mortgage guaranty premiums increased due to higher premium rates and an increase
in the amount of renewal business. The nationwide drop in residential real
estate sales led to a small decline in title net premiums and fees earned for
1990, but greater real estate financing activity during 1991 led to higher
revenues for that year. Life and disability premium volume has generally trended
down during the past three years, and the Corporation continues to de-emphasize
this business until greater returns are possible.
Net investment income grew by 6%, 4% and 14% in 1991, 1990 and 1989,
respectively. For each of the past three years, the growth in this revenue
source was bolstered by positive consolidated operating cash flows
9
<PAGE> 18
and a concentration of investable assets in interest-bearing, fixed maturity
securities. The average annual yield on investments was 8.1%, 8.4% and 8.6% for
the years ended December 31, 1991, 1990 and 1989, respectively.
Expenses: Consolidated benefit, claim, and related settlement costs, as a
percentage of net premiums and fees earned, were approximately 62% in 1991 and
1990, and 59% in 1989. Higher loss costs were incurred during 1989 for most
liability insurance coverages, while loss ratios declined in both title and
mortgage insurance lines due to a reduction of both frequency and severity of
claim occurrences. The 1991 and 1990 consolidated loss ratios were affected by
higher claim ratios for property and liability insurance coverages.
Policyholders' dividends incurred in the Corporation's property and liability
lines for each year reflect changes in the loss ratio for experience-rated
policies. In the most recent three years, the Corporation's property and
liability insurance subsidiaries, along with other companies in the industry,
have also sustained higher loss assessments for residual market (assigned risk)
business.
The ratio of consolidated underwriting, acquisition, and insurance expenses
to net premiums and fees earned was approximately 43% in 1991, 45% in 1990, and
47% in 1989. Variations in these ratios reflect a continually changing mix of
coverages sold and attendant costs of producing business.
Income from Operations: Income before taxes increased by 32% in 1991, 11%
in 1990 and 208% in 1989. The restoration of more acceptable title insurance
operating margins during 1989 had a positive effect on consolidated results for
that year. Despite stable claims costs in 1990, the title insurance operating
results declined due to the previously noted decrease in revenues and a higher
expense ratio. General insurance results have trended up during the past three
years and have continued as the major contributor to consolidated earnings,
principally as a result of growing investment income. The mortgage guaranty
segment reflected improved results due to favorable claims experience in each of
the past three years, while life and disability operations have reflected
downward trends in each of the past three years, principally due to a declining
revenue base.
The effective consolidated income tax rates were 26% in 1991, 22% in 1990,
and 18% in 1989. 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 fully taxable investment and underwriting and
service income, on the other hand. Amortization of fresh start benefits stemming
from the Tax Reform Act of 1986 (the "TRA") reduced income taxes by $3.6 million
in 1991, $5.5 million in 1990 and $7.0 million in 1989.
The Revenue Reconciliation Act of 1990 (the "RRA") provided for a number of
changes affecting the taxation of the Corporation and a number of its
subsidiaries. Among such changes are acceleration in the recognition of salvage
and subrogation recoveries and deferral of costs associated with the production
of life and disability business and the subsequent amortization of those costs.
The TRA also provided for a number of changes affecting the taxation of the
Corporation and a number of its subsidiaries. Among such changes are reductions
in corporate tax rates, the discounting of loss reserves, the acceleration of
premium income recognition, and the inclusion in taxable income of a portion of
certain tax-exempt investment income previously not subject to tax. In addition,
the TRA calls for the calculation of an alternative minimum tax.
The RRA and TRA are likely to result in accelerated payment of federal
income taxes. Most of the additional tax payments are treated as timing
differences for financial accounting purposes. Consequently, such payments are
expected to have minimal effects on consolidated results of operations and
financial position determined in accordance with generally accepted accounting
principles.
OTHER INFORMATION
Historical data pertaining to the operating results, liquidity, and other
financial matters applicable to an insurance enterprise such as the Corporation
are not necessarily indicative of results to be achieved in succeeding years.
The long-term nature of the insurance business, seasonal and annual patterns in
premium production and incidence of claims, changes in yields obtained on
invested assets, and changes in government policies affecting inflation rates
and general economic conditions are some of the factors which have a bearing on
year-to-year and quarter-to-quarter comparisons and future operating results.
10
<PAGE> 19
BUSINESS
INSURANCE UNDERWRITING AND RELATED SERVICES
Old Republic operates in the general (property and liability), life (life
and disability), title, and mortgage guaranty insurance segments of the United
States insurance industry. The contributions to net revenues and income (loss)
before taxes 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 "Selected Consolidated
Financial Data" table, the notes thereto, and the "Management Analysis of
Financial Position and Results of Operations" appearing elsewhere herein.
<TABLE>
<CAPTION>
(IN MILLIONS)
--------------------------------------------------------------
NET REVENUES(A) INCOME (LOSS) BEFORE TAXES
-------------------------------- --------------------------
1991 1990 1989 1991 1990 1989
-------- -------- -------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
General......................... $ 933.3 $ 846.7 $ 791.6 $118.1 $107.4 $ 84.8
Life............................ 49.0 60.3 55.1 10.7 9.1 10.3
Title........................... 313.5 284.6 283.6 15.7 8.0 18.6
Mortgage Guaranty............... 55.8 46.9 42.3 28.2 21.7 13.5
Other Operations -- Net......... 1.6 2.9 2.2 (18.7) (14.5) (14.8)
-------- -------- -------- ------ ------ ------
Subtotal................... 1,353.4 1,241.6 1,175.0 154.1 131.8 112.4
Realized Investment Gains....... 21.1 1.0 6.9 21.1 1.0 6.9
-------- -------- -------- ------ ------ ------
Total...................... $1,374.5 $1,242.7 $1,181.9 $175.2 $132.8 $119.4
======== ======== ======== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
ASSETS AT DECEMBER 31,
--------------------------------
1991 1990 1989
-------- -------- --------
<S> <C> <C> <C>
General......................................... $2,994.8 $2,679.7 $2,479.7
Life............................................ 285.7 284.2 304.3
Title........................................... 328.6 270.3 260.7
Mortgage Guaranty............................... 211.3 182.7 167.9
Consolidated.................................... $3,713.2 $3,328.5 $3,123.5
</TABLE>
- ---------------
(a) Revenues consist of net premiums earned, fees, net investment and other
income earned; realized investment gains are shown in total for all groups
combined.
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 commercial enterprises and public entities such as
municipalities. Within these classes of insurance, Old Republic specializes in a
number of industries, most prominently the transportation, coal and energy
services, construction and forest product industries. Such business is primarily
produced through agency and brokerage channels.
The rates charged for all workers' compensation insurance are generally
regulated by the various states and it is possible that the rate increases
necessary to cover any expansion of benefits under state laws 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 to encompass risks other than coal and energy
services risks. This diversification has been achieved through a combination of
internal growth, the establishment of new subsidiaries, and through selective
mergers with other companies. For 1991, production of direct workers'
compensation premiums accounted for 38.4% of
11
<PAGE> 20
consolidated direct premiums written by the General Insurance Group; coal and
energy services premiums accounted for 15.9% of total workers' compensation
premiums. For the same year, general liability and commercial automobile
liability direct insurance premiums amounted to 10.4% and 30.0%, respectively,
of consolidated direct premiums written by the General Insurance Group.
During the past decade, specialty programs have also been expanded to
insure corporations' exposures to directors' and officers' and errors and
omissions liability, and to insure owners and operators of private aircraft for
hull and liability exposures.
The Corporation assumes (on both treaty and facultative bases) reinsurance
business underwritten by other insurance or reinsurance companies. Most of this
business covers workers' compensation, general and automobile liability
exposures.
Property and Other Coverages: Old Republic's property insurance business
includes physical damage insurance on commercial automobile and trucking risks.
Most fire and other physical peril insurance is also written for mobile homes
and commercial properties. All such insurance is produced either directly,
through agents, or through financial intermediaries such as finance companies.
Fidelity and surety coverages are underwritten through agents by the Old
Republic Surety Group, Inc.
Insured Credit Services, Inc., a wholly-owned subsidiary, has marketed loan
credit guaranty insurance since 1955 through commercial banks and thrift
institutions. This coverage provides lenders with a financial guaranty on loan
defaults and is similar to competing insurance provided by the Federal Housing
Administration.
LIFE INSURANCE GROUP
Credit and 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 disability/accident and
health insurance coverages for many years, principally on a direct marketing
basis through banks and other financial services institutions. Ordinary term
life insurance is sold through independent agents and brokers for relatively
large face amounts, in both the United States and Canada. Marketing of term life
insurance products is aimed principally toward self-employed individuals,
professionals, and owners of small businesses.
Annuities: Through the early 1980's, 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. In the past five years the volume of
annuity business has not been material because the Corporation has been
unwilling to invest in so-called "junk bonds" or in illiquid securities to help
assure higher, more competitive guaranteed rates.
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 one-time 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
polices to protect their mortgagees' interest in real property. This protection
remains in effect for as long as the mortgagee has an interest in the property.
A
12
<PAGE> 21
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 policies on the same property 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 relating to the disbursement of
construction funds, and other services pertaining to real estate transactions.
MORTGAGE GUARANTY GROUP
Real estate mortgage loan insurance protects lending institutions against
certain losses, generally to the extent of 10% to 30% of the sum of the
outstanding amount of each insured mortgage loan, and allowable costs incurred
in the event of default by the borrower. The Corporation insures only first
mortgage loans, primarily on residential properties having one-to-four family
dwelling units.
Mortgage guaranty insurance premiums originate from savings and loan
associations and other lending institutions. Approximately 30% of the
Corporation's residential real estate loan insurance business is currently
originated by savings and loan associations, and the remaining 70% is produced
through other lenders. Increased failures of savings and loan associations and
other lending institutions have not had and should not have a bearing on any
segment of the Corporation's business since the performance 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 insurance in force at December 31, 1991 was originated
by about 2,600 different lending institutions, and 1,100 such institutions
originated business in 1991.
Both annual 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. Single premium plans provide coverage for a period of
from 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 charge
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 96% of the
residential real estate loan insurance in force at December 31, 1991 has been
written under annual premium plans.
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, which is followed by a
certificate of insurance when the loan is consummated.
13
<PAGE> 22
INVESTMENTS
In common with other insurance organizations, Old Republic invests most
funds provided by operations in income-producing investment securities and bank
deposits. All investments must comply with applicable insurance laws and
regulations which prescribe the nature, form, quality, and relative amounts of
investments which may be made by insurance companies. Generally, these laws and
regulations permit insurance companies to invest within varying limitations in
state, municipal and federal government obligations, corporate obligations,
preferred and common stocks, certain types of real estate, and first mortgage
loans. Old Republic's investment policies are also influenced by the terms of
the insurance coverages written, by its expectations as to the timing of claim
and benefit payments, and by income tax considerations. The following tables
show invested assets at the end of the last three years, together with
investment income for such years.
CONSOLIDATED INVESTMENTS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1991 1990 1989
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Fixed Maturity Securities:
Taxable Bonds and Notes................................... $2,281.7 $1,825.1 $1,524.1
Tax-Exempt Bonds and Notes................................ 229.6 377.9 476.3
Redeemable Preferred Stocks............................... 7.2 7.0 7.6
-------- -------- --------
2,518.6 2,210.1 2,008.1
-------- -------- --------
Equity Securities:
Perpetual Preferred Stocks................................ .4 1.5 1.5
Common Stocks............................................. 51.0 38.6 9.9
-------- -------- --------
51.4 40.1 11.5
-------- -------- --------
Other Invested Assets:
Mortgage Loans............................................ 11.6 9.0 9.6
Policy Loans.............................................. 2.0 2.0 2.3
Collateral Loans.......................................... 1.4 2.0 2.0
Sundry.................................................... .3 .3 .3
-------- -------- --------
15.5 13.5 14.4
-------- -------- --------
Short-term Investments...................................... 290.0 273.5 328.9
-------- -------- --------
Total Investments........................................... $2,875.6 $2,537.4 $2,363.0
======== ======== ========
</TABLE>
SOURCES OF CONSOLIDATED INVESTMENT INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1991 1990 1989
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Fixed Maturity Securities:
Taxable................................................... $173.8 $143.6 $111.9
Tax-Exempt................................................ 22.4 33.4 38.6
Redeemable Preferred Stocks............................... .5 .6 .6
------ ------ ------
196.8 177.6 151.2
------ ------ ------
Equity Securities:
Perpetual Preferred Stocks................................ -- -- --
Common Stocks............................................. .6 .4 .8
------ ------ ------
.6 .4 .8
------ ------ ------
Other Investment Income:
Interest on Short-term Investments........................ 17.6 26.2 44.7
Sundry.................................................... 9.1 7.5 7.5
------ ------ ------
26.7 33.7 52.2
------ ------ ------
Gross Investment Income..................................... 224.2 211.8 204.3
Less: Investment Expenses(a).............................. 4.9 5.1 6.0
------ ------ ------
Net Investment Income....................................... $219.3 $206.6 $198.3
====== ====== ======
</TABLE>
- ---------------
(a) Investment expenses include interest expense of approximately $1.4 million
in 1991, $2.0 million in 1990 and $2.2 million in 1989, relating to
reinsurance agreements and retrospective premium adjustment contracts of
insurance subsidiaries. Substantially all other investment expenses consist
of salaries and investment service fees.
14
<PAGE> 23
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, and mortgage loans is immaterial.
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 June
30, 1992 and December 31, 1991, total investments in default as to principal
and/or interest amounted to less than 1% of consolidated assets.
The independent credit quality ratings and maturity distribution for Old
Republic's consolidated fixed maturity investments, excluding short-term
investments, at December 31, 1991 and December 31, 1990, are shown in the
following tables. These investments, $2.5 billion and $2.2 billion at December
31, 1991 and December 31, 1990, respectively, represented approximately 68% and
66%, respectively, of consolidated assets, and 92% and 87%, respectively, of
consolidated liabilities as of such dates.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
INDEPENDENT RATINGS(A) 1991 1990
---------------------- ------- -------
(% OF TOTAL PORTFOLIO)
<S> <C> <C>
Aaa............................................... 22.4% 19.1%
Aa................................................ 17.8 19.3
A................................................. 41.5 36.0
Baa............................................... 14.2 18.4
All others(b)..................................... 4.1 7.2
------ ------
Total.............................. 100.0% 100.0%
====== ======
</TABLE>
- ---------------
(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 convertible securities and other non-rated securities.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
MATURITY DISTRIBUTION 1991 1990
--------------------- ------- -------
(% OF TOTAL PORTFOLIO)
<S> <C> <C>
Due in less than 1 year........................... 8.2% 13.2%
Due in 1 to 5 years............................... 39.0 47.3
Due in 6 to 10 years.............................. 40.1 20.6
Due in 11 to 15 years............................. 5.5 6.0
Due in 16 or more years........................... 7.2 12.9
------ ------
100.0% 100.0%
====== ======
</TABLE>
OTHER MATTERS
The Internal Revenue Service (the "IRS") has issued Notices of Deficiency
in income taxes of the Corporation and certain of its subsidiaries totalling
approximately $12.9 million with respect to tax years 1976 to 1979, all of which
have been contested in the United States Tax Court. Most of the significant
adjustments made in such Notices of Deficiency have been resolved favorably to
the taxpayer (subject to review by the Joint Committee on Taxation of the United
States Congress), and management of the Corporation expects that, once such
disputes are finally settled, no net deficiency will be due. Additionally,
during the quarter ended June 30, 1992, the Corporation's life insurance
subsidiaries recorded previously unrecognized tax recoveries of $1.1 million and
related interest credits of approximately $11.8 million stemming from resolution
of various long-standing IRS disputes applicable to tax years 1969 to 1981.
The IRS has also issued a Notice of Deficiency in income taxes of
approximately $24.2 million with respect to the Corporation's tax years 1982 and
1983. The Corporation has filed a Petition in the United States Tax Court
contesting such deficiencies. In addition, the Corporation has received a
Revenue Agent's Report
15
<PAGE> 24
from the IRS proposing assessments of approximately $37.6 million for its 1984
and 1985 tax years. The two principal reasons for the IRS's proposed assessments
for the Corporation's 1982 to 1985 tax years are: (a) the IRS's failure to allow
any loss carryback from the Corporation's 1985 tax year to its 1982 and 1983 tax
years, even though the IRS's audit for 1985 indicated that more than $42 million
of the Corporation's 1985 loss was eligible to be carried back to such years;
and (b) the IRS's contention that Old Republic Insurance Company's ("ORINSCO")
loss and loss adjustment expense ("LAE") reserves for 1984 and 1985 were
overstated. As regards the 1985 loss carryback, the IRS's failure to allow the
carryback in its Notice of Deficiency for 1982 and 1983 arose from procedural,
rather than substantive concerns; the government was concerned both that open
issues for 1985 might alter the amount of the 1985 loss, and that allowance of
the 1985 carryback would have eliminated most or all of the alleged 1982 and
1983 deficiencies, thereby depriving the United States Tax Court of
jurisdiction. As regards ORINSCO's 1984 and 1985 loss and LAE reserves,
management of the Corporation has reviewed those reserves and believes that they
were not overstated. Moreover, the IRS's proposed adjustments to such reserves
are in essence timing issues. In prior audit cycles, the IRS proposed similar
adjustments to ORINSCO's 1978 to 1983 loss and LAE reserves. The taxpayer
ultimately convinced the government that ORINSCO's loss and LAE reserves for
those prior cycles were not overstated. In any event, management is of the
opinion that the resolution of the proposed material adjustments for the
Corporation's 1982 to 1985 tax years will not have a material adverse effect on
the Corporation's financial position or results of operations.
The Corporation recently received Revenue Agent's Reports with respect to
tax years 1986 and 1987. Such Reports propose to assess deficiencies in tax for
1986 and 1987 totalling approximately $161,000 and $11.9 million, respectively.
The principal reason for the proposed assessments for 1987 is the IRS's
contention that certain subsidiaries of the Corporation engaged in $40.1 million
of "reserve strengthening" in 1986 for which they are not entitled to a
so-called "fresh start" tax benefit in 1987. Approximately $21.7 million of the
alleged "reserve strengthening" arises as a direct result of the IRS's proposed
reductions to ORINSCO's loss and LAE reserves for 1985, as described in the
preceding paragraph. The Corporation and its subsidiaries intend to contest the
proposed "reserve strengthening" adjustments vigorously. In addition, for 1986
the Revenue Agent's Report determined a net operating loss in the nonlife
subgroup of more than $27 million. This report did not reflect any tax benefit
from application of that loss. In any event, management is of the opinion that
the resolution of the proposed material adjustments for 1986 and 1987 will not
have a material adverse effect on the Corporation's financial position or
results of operations.
DESCRIPTION OF DEBT SECURITIES
The following description of the terms of the Debt Securities sets forth
certain general terms and provisions of the Debt Securities to which any
Prospectus Supplement may relate. The particular terms of the Debt Securities
offered by any Prospectus Supplement (the "Offered Debt Securities"), including
the nature of any variations from the following general provisions applicable to
such Offered Debt Securities, will be described in the Prospectus Supplement
relating to such Offered Debt Securities.
The Debt Securities will be unsecured general obligations of the
Corporation. The Debt Securities may be senior or subordinate in priority of
payment. The Debt Securities may be offered as convertible Debt Securities
which, unless previously redeemed or otherwise purchased or acquired, will be
convertible at any time during the specified conversion period into shares of
the Corporation's Common Stock, par value $1.00 per share. The Debt Securities
are to be issued under an Indenture (the "Indenture") to be entered into between
the Corporation and the trustee (the "Trustee"), a copy of the form of which
Indenture is filed as an exhibit to the Registration Statement.
The following summaries of certain provisions of the Indenture do not
purport to be complete and are subject to, and are qualified in their entirety
by reference to, all of the provisions of the Indenture, including the
definitions therein of certain terms. Whenever particular sections or defined
terms of the Indenture are referred to, it is intended that such sections or
defined terms shall be incorporated herein by reference. Unless otherwise
indicated, capitalized terms shall have the meanings ascribed to them in the
Indenture. The section numbers refer to sections of the Indenture.
16
<PAGE> 25
GENERAL
The Indenture does not limit the aggregate principal amount of debentures,
notes or other evidences of indebtedness which may be issued thereunder and
provides that Debt Securities may be issued thereunder in one or more series, in
such form or forms, with such terms and up to the aggregate principal amount
authorized from time to time by the Corporation.
Reference is made to the Prospectus Supplement for the following terms of
the Offered Debt Securities: (1) the designation, aggregate principal amount and
authorized denominations of the Offered Debt Securities; (2) the percentage of
their principal amount at which such Offered Debt Securities will be issued; (3)
the date or dates on which the Offered Debt Securities will mature or the method
of determination thereof; (4) the rate or rates (which may be fixed or variable)
at which the Offered Debt Securities will bear interest, if any, or the method
by which such rate or rates shall be determined, any reset features of the rates
and the date or dates from which such interest will accrue or the method by
which such date or dates shall be determined; (5) the dates on which any such
interest will be payable and the regular record dates for such interest payment
dates; (6) any mandatory or optional sinking fund or purchase fund or analogous
provisions; (7) if applicable, the date after which and the price or prices at
which the Offered Debt Securities may, pursuant to any optional or mandatory
redemption provisions, be redeemed at the option of the Corporation or of the
holder thereof and the other detailed terms and provisions of such optional or
mandatory redemption; (8) if applicable, the terms and conditions upon which the
Offered Debt Securities may be convertible into Common Stock, including the
initial conversion rate, the conversion period and any other provision in
addition to or in lieu of those described herein; (9) whether such Offered Debt
Securities shall be subject to defeasance and, if so, the terms thereof; (10)
any Events of Default provided with respect to the Offered Debt Securities that
are in addition to or different from those described herein; and (11) any other
terms of the Offered Debt Securities.
Unless otherwise indicated in the Prospectus Supplement relating thereto,
the principal of (and premium, if any) and interest (if any) on the Offered Debt
Securities will be payable, and the Offered Debt Securities will be exchangeable
and transfers thereof will be registrable, at the Corporate Trust Office of the
Trustee, provided that at the option of the Corporation, payment of any interest
may be made by check mailed to the address of the person entitled thereto as it
appears in the Security Register.
In any case where the date on which the principal of and premium, if any,
and interest, if any, on the Offered Debt Securities is payable, or which is the
last day any Offered Debt Securities may be converted, is not a Business Day at
any Place of Payment for such Offered Debt Securities or at any place where
Offered Debt Securities may be surrendered for conversion, then (notwithstanding
any other provision of the Indenture or of such Offered Debt Securities) payment
of such principal, premium or interest, or conversion of such Offered Debt
Securities, need not be made at such Place of Payment or place where Offered
Debt Securities may be surrendered for conversion on such date but may be made
on the next succeeding Business Day at such Place of Payment or place where
Offered Debt Securities may be surrendered for conversion, provided that no
interest shall accrue for the period from and after the date on which such
principal, premium or interest is payable. (Section 113)
The Offered Debt Securities will be issued only in fully registered form,
without coupons, in denominations of $1,000 or any integral multiple thereof. No
service charge will be made for any registration of transfer or exchange of the
Offered Debt Securities, but the Corporation may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith.
The Debt Securities may be issued in book-entry form through the facilities
of a depository. The description of any book-entry arrangements will be
contained in the Prospectus Supplement.
Debt Securities may be issued under the Indenture as original issue
discount securities to be offered and sold at a discount from the principal
amount thereof. Special federal income tax, accounting and other considerations
applicable to any such original issue discount securities will be described in
the Prospectus Supplement relating thereto.
17
<PAGE> 26
At any time and from time to time after the execution and delivery of the
Indenture, the Corporation may deliver Debt Securities to the Trustee for
authentication, and the Trustee shall, in accordance with instructions from the
Corporation, authenticate and deliver such Debt Securities as provided in the
Indenture.
So long as any Debt Securities remain outstanding, the Corporation will
cause its annual reports to shareholders to be mailed to the holders of the Debt
Securities ("Holders") at their addresses appearing in the Debt Securities
Register. (Section 704)
SENIOR DEBT SECURITIES
The Prospectus Supplement will state if the Offered Debt Securities are to
be Senior Debt Securities. Senior Debt Securities will be senior in right of
payment to all subordinated indebtedness of the Corporation, and pari passu with
other unsecured, unsubordinated indebtedness of the Corporation. See
"Description of Debt Securities -- Subordinated Debt Securities."
SUBORDINATED DEBT SECURITIES
The Prospectus Supplement will state if the Offered Debt Securities are to
be subordinated Debt Securities (the "Subordinated Debt Securities") and subject
to the subordination provision contained in the Indenture. The Indenture
provides, if such provision is made applicable to the Debt Securities of any
series pursuant to Section 1401 of the Indenture, that the payment of principal
(and premium, if any) of, sinking fund requirements for and interest on the
Subordinated Debt Securities is subordinated in right of payment to the payment
of all Senior Indebtedness of the Corporation. "Senior Indebtedness" is defined
as the principal of, premium, if any, and unpaid interest on the following,
whether outstanding at the date hereof or thereafter incurred, created or
assumed: (a) indebtedness of the Corporation for money borrowed (including
purchase-money obligations) evidenced by notes or other written obligations, (b)
indebtedness of the Corporation evidenced by notes, debentures, bonds or other
securities issued under the provisions of an indenture or similar instrument,
(c) obligations of the Corporation as lessee under capitalized leases and leases
of property made as part of any sale and leaseback transactions, (d)
indebtedness of others of any of the kinds described in the preceding clauses
(a) through (c) assumed or guaranteed by the Corporation, and (e) renewals,
extensions and refundings of any such indebtedness or obligations, unless in
each case the instrument creating or evidencing such indebtedness or obligation
expressly provides that such indebtedness or obligation is not superior in right
of payment to the Subordinated Debt Securities, but Senior Indebtedness shall
not include the Subordinated Debt Securities and indebtedness which ranks pari
passu with the Subordinated Debt Securities. (Sections 101 and 1401)
The Indenture does not limit the amount of Senior Indebtedness that may be
incurred. As of June 30, 1992, the amount of outstanding Senior Indebtedness was
approximately $210 million. The Corporation may from time to time incur
additional Senior Indebtedness. In addition, the Corporation's subsidiaries
incur liabilities and have obligations to third parties. The claims of such
third parties to the assets of the Corporation's subsidiaries will be superior
to those of the Corporation as a shareholder and therefore the Debt Securities
(whether Senior Debt Securities or Subordinated Debt Securities) may be deemed
to be effectively subordinated to the claims of such third parties.
At December 31, 1991, the terms of guaranties by Old Republic of bank loans
to the trustee of Old Republic's Employees Savings and Stock Ownership Plan
provided that, while such loans are outstanding, Old Republic will maintain a
minimum consolidated tangible net worth (excluding goodwill and net unrealized
capital gains or losses, but including the title plants and records of
subsidiaries of the Old Republic Title Insurance Group) of at least $400
million. Such guaranties also, among other things, restrict Old Republic from
permitting Debt (as defined) to exceed 27% of its consolidated tangible net
worth (as adjusted for goodwill and net unrealized capital gains or losses on
equity securities) without approval of the lenders. As of June 30, 1992, the
Corporation had a consolidated tangible net worth of approximately $951 million
(excluding goodwill and net unrealized capital gains or losses, but including
the title plants and records of subsidiaries of the Old Republic Title Insurance
Group).
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In the event of any payment or distribution of assets or securities of the
Corporation upon any liquidation, dissolution, winding-up or reorganization of
or similar proceeding relating to the Corporation, the payment of the principal
(and premium, if any), sinking fund requirements and interest on the
Subordinated Debt Securities will be subordinated to the extent provided in the
Indenture in right of payment to the prior payment in full of all Senior
Indebtedness. No payment on account of principal (and premium, if any) of,
sinking fund requirements for or interest on the Subordinated Debt Securities
may be made if, at the time of such payment, there exists a default with respect
to any Senior Indebtedness and the default is the subject of judicial
proceedings or the Corporation receives notice of the default from the Trustee
or any holder of Senior Indebtedness or any trustee therefor. Upon any
acceleration of the maturity of the Subordinated Debt Securities by reason of a
default, the Corporation must give notice of the acceleration to holders of the
Senior Indebtedness and may not pay holders of the Subordinated Debt Securities
until 120 days after the acceleration and then only if such payment is otherwise
permitted at that time. Upon any payment or distribution of assets or securities
of the Corporation upon any liquidation, dissolution, winding-up or
reorganization of or similar proceeding relating to the Corporation, the holders
of Senior Indebtedness will be entitled to receive payment in full before the
holders of the Subordinated Debt Securities are entitled to receive any payment.
(Sections 1402 and 1403)
By reason of such subordination, in the event of insolvency, creditors of
the Corporation who are holders of Senior Indebtedness, as well as general
creditors of the Corporation, may recover more, ratably, than the holders of the
Subordinated Debt Securities.
CONVERTIBLE DEBT SECURITIES
The Prospectus Supplement will state whether the Offered Debt Securities
will be convertible into shares of Common Stock ("Convertible Debt Securities")
and, if so, the initial conversion price or conversion rate at which such
Convertible Debt Securities will be convertible into Common Stock. The holders
of Convertible Debt Securities will be entitled at any time during the time
period specified in the Prospectus Supplement to convert the Convertible Debt
Securities into shares of Common Stock, except that, with respect to Convertible
Debt Securities called for redemption, conversion rights will expire at the
close of business on the Redemption Date unless the Corporation defaults in
making the payment due upon redemption. Notice of a redemption must be given not
less than 30 days and not more than 60 days prior to the Redemption Date.
(Sections 1301 and 1104)
Convertible Debt Securities surrendered for conversion during the period
from the close of business on any record date for the payment of interest on
such Convertible Debt Securities to the opening of business on the corresponding
interest payment date (except Convertible Debt Securities called for redemption
during such period) must be accompanied by payment of an amount equal to the
amount of interest payable on such Convertible Debt Securities on such interest
payment date. The registered holder of such Convertible Debt Securities at the
close of business on an interest payment record date shall be entitled to
receive the interest payable on such Convertible Debt Securities (except
Convertible Debt Securities called for redemption between such record date and
the interest payment date) on the corresponding interest payment date
notwithstanding the conversion thereof or the Corporation's default on payment
of the interest due on such interest payment date. A holder of Convertible Debt
Securities on an interest payment record date who (or whose transferee) converts
Convertible Debt Securities on an interest payment date will receive the
interest payable on such Convertible Debt Securities by the Corporation on such
date and the converting holder need not include payment in the amount of such
interest upon surrender of Convertible Debt Securities for conversion. (Sections
307 and 1302)
No fractional shares will be issued upon conversion and, in lieu of any
fractional share, an adjustment in cash will be made based on the closing price
(as defined) of the Common Stock as quoted on the New York Stock Exchange on the
last business day prior to the date of such conversion. (Sections 1303 and 1304)
The conversion rate is subject to adjustment in certain events, including
(i) the issuance of capital stock of the Corporation as a dividend or a
distribution, (ii) subdivisions, combinations and reclassifications of the
Common Stock, (iii) the issuance to all holders of Common Stock of rights or
warrants entitling them to
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<PAGE> 28
subscribe for or purchase shares of Common Stock at less than the current market
price of Common Stock (as defined), and (iv) the distribution to all holders of
Common Stock of evidences of indebtedness of the Corporation or of assets (other
than cash dividends from retained earnings) or subscription rights to securities
of the Corporation (other than those referred to above). Except in these cases,
the conversion rate will not be adjusted for the issuance of Common Stock. No
adjustment of the conversion rate will be required to be made in any case until
cumulative adjustments amount to at least one percent of the current conversion
rate. The Corporation reserves the right to make such increases in the
conversion rate in addition to those required by the foregoing provisions as the
Corporation in its discretion shall determine to be advisable in order that
certain stock related distributions hereafter made by the Corporation to its
shareholders shall not be taxable. (Section 1304)
Except as aforesaid, no payment or adjustment will be made on conversion
for interest accrued on Convertible Debt Securities or for dividends on the
Common Stock issued on conversion. (Section 1302)
In case of any consolidation or merger of the Corporation with or into any
other corporation other than a consolidation or merger in which the Corporation
is the continuing corporation and which does not result in any reclassification
of or changes (other than a change in par value or from par value to no par
value or from no par value to par value, or as a result of a subdivision or
combination) in, outstanding shares of Common Stock, or any sale or transfer of
all or substantially all the assets of the Corporation, the holders of Debt
Securities shall after such consolidation, merger, sale or transfer have the
right to convert such Debt Securities into the kind and amount of securities,
cash and other property which each such holder would have been entitled to
receive upon such consolidation, merger, sale or transfer if such holder had
held the Common Stock issuable upon the conversion of such Debt Securities
immediately prior to such consolidation, merger, sale or transfer. (Section
1311)
MERGER AND CONSOLIDATION
The Indenture provides that the Corporation may, without the consent of the
Holders of Debt Securities, consolidate with or merge into any other
corporation, or convey, transfer or lease its properties and assets
substantially as an entirety to any person, provided that in any such case (i)
the successor corporation shall be a domestic corporation and such corporation
shall assume by a supplemental indenture the Corporation's obligations under the
Indenture, and (ii) immediately after giving effect to such transaction, no
default under the Indenture shall have occurred and be continuing. (Section 801)
CERTAIN COVENANTS APPLICABLE TO ALL DEBT SECURITIES
Limitation on Liens on Stock of Principal Insurance Subsidiaries. The
Indenture provides that the Corporation will not, nor will it permit any
Principal Insurance Subsidiary to, issue, assume or guarantee any indebtedness
for borrowed money (hereinafter referred to as "Indebtedness") secured by a
mortgage, security interest, pledge, lien or other encumbrance upon any share of
stock of any Principal Insurance Subsidiary without effectively providing that
the Debt Securities (together with, if the Corporation shall so determine, any
other indebtedness of or guarantee by the Corporation ranking equally with the
Debt Securities and then existing or thereafter created) shall be secured
equally and ratably with such Indebtedness. (Section 1005)
For purposes of the Indenture, "Principal Insurance Subsidiary" will be
defined to mean each of Old Republic Life Insurance Company, Old Republic
Insurance Company, Old Republic Life Insurance Company of New York, Title
Insurance Company of Minnesota, Republic Mortgage Insurance Company, Bituminous
Casualty Corporation, and Great West Casualty Company, as well as any successor
to all or a principal part of the business or properties of any such subsidiary.
(Section 101)
Limitation on Issuance or Disposition of Stock of Principal Insurance
Subsidiaries. The Indenture provides that the Corporation will not, nor will it
permit any Principal Insurance Subsidiary to, issue, sell or otherwise dispose
of any shares of capital stock (other than nonvoting, nonconvertible preferred
stock) of any Principal Insurance Subsidiary, except for (i) directors'
qualifying shares; (ii) sales or other dispositions to the Corporation or one or
more wholly-owned subsidiaries; (iii) the disposition of the entire capital
stock of any Principal Insurance Subsidiary for consideration which is at least
equal to the fair value of such capital stock
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<PAGE> 29
as determined by the Corporation's Board of Directors; (iv) sales or other
dispositions made in compliance with an order of a court or regulatory authority
of competent jurisdiction, other than an order issued at the request of the
Corporation or any Principal Insurance Subsidiaries; or (v) sales or other
dispositions for fair value as determined by the Corporation's Board of
Directors if, after giving effect thereto, the Corporation and its Principal
Insurance Subsidiaries would own at least 80% of the issued and outstanding
capital stock of such Principal Insurance Subsidiary. (Section 1006)
MODIFICATION OF THE INDENTURE
The Indenture may be modified by the Corporation with the consent of the
Holders of at least a majority in principal amount of the outstanding Debt
Securities of all series affected thereby, provided that without the consent of
the Holder of each Debt Security affected thereby, no such modification may (i)
change the Stated Maturity of or reduce the amount of principal of or interest
on or any premium payable upon the redemption of Debt Securities; (ii) change
the other terms of payment thereof; (iii) impair the right to institute suit for
the enforcement of any such payment on or after the Stated Maturity thereof; or
(iv) reduce the percentage in principal amount of Debt Securities of any series
the consent of whose Holders is necessary to effect any such modification or
waive compliance with certain covenants and conditions in the Indenture.
(Section 902) Compliance with certain covenants of the Corporation (including
those summarized above under "Certain Covenants Applicable to All Debt
Securities" may be waived, either generally or in a specific instance and either
before or after the time for such compliance, with the consent of the Holders of
at least a majority in principal amount of all outstanding Debt Securities.
(Section 1007)
SATISFACTION AND DISCHARGE OF INDENTURE; DEFEASANCE
The Indenture (except for certain specified surviving obligations
including, among other things, the Corporation's obligation to pay the principal
of (or premium, if any) and interest on the Debt Securities and to issue Common
Stock upon the conversion of Convertible Debt Securities) will be discharged and
canceled with respect to the Debt Securities of any series upon the satisfaction
of certain conditions, including the payment of all the Debt Securities of such
series or the deposit with the Trustee of funds or U.S. Government Obligations
or a combination thereof sufficient for such payment or redemption in accordance
with the Indenture. (Article Four)
EVENTS OF DEFAULT
The following events with respect to Debt Securities of any or all series,
as the case may be, will be defined in the Indenture as "Events of Default" with
respect to Debt Securities of such series: (i) default in the payment of any
interest when due, continued for 30 days; (ii) default in the payment of the
principal (or premium, if any) on maturity; (iii) default in the payment to any
sinking fund when due; (iv) default in the performance of any other Indenture
covenant of the Corporation, continued for 60 days after written notice from the
Trustee or the Holders of at least 10% in principal amount of the outstanding
Debt Securities of such series affected thereby; (v) acceleration of the
maturity of any other indebtedness of the Corporation in excess of $5,000,000 in
principal amount under the terms of the instrument under which such indebtedness
may be outstanding, if such acceleration is not annulled or such indebtedness is
not discharged within 10 days after written notice from the Trustee or the
Holders of at least 10% in principal amount of the outstanding Debt Securities
prior to acceleration under the Indenture; (vi) certain events in bankruptcy or
insolvency of the Corporation; and (vii) any other Event of Default provided
with respect to Debt Securities of that series. (Section 501)
If an Event of Default with respect to Debt Securities of any series shall
occur and be continuing, the Trustee or the Holders of not less than 25% in
aggregate principal amount of the then outstanding Debt Securities of such
series may declare the principal amount of all Debt Securities of such series
and/or such other amount or amounts as the Debt Securities or supplemental
indenture with respect to such series may provide, to be due and payable
immediately. (Section 502)
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The Indenture will provide that the Trustee shall, within 90 days after the
occurrence of a default with respect to Debt Securities of any series, mail to
the Holders of Debt Securities of such series affected thereby notice of all
uncured defaults known to it (the term default to include the events specified
above without grace periods); provided, that (i) except in the case of default
in the payment of principal of (or premium, if any) or interest on any of the
Debt Securities or in the payment of any sinking fund installment, the Trustee
shall be protected in withholding such notice if it in good faith determines
that the withholding of such notice is in the interest of the Holders and (ii)
in the case of default of the character referred to in subdivision (iv) of the
preceding paragraph no such notice shall be given until at least 30 days after
the occurrence thereof. (Section 602)
The Corporation will be required to furnish to the Trustee annually a
statement of certain officers of the Corporation to the effect that to the best
of their knowledge the Corporation is not in default in the performance and
observance of certain terms of the Indenture, or if they have knowledge that the
Corporation is, or during the course of the year covered by the statement, has
been, in default, specifying such default. (Section 704)
The Holders of a majority in principal amount of the Debt Securities then
outstanding of each series affected will have the right, subject to certain
limitations, to direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee or exercising any trust or power
conferred on the Trustee. (Section 512) The Holders of a majority in principal
amount of the Debt Securities of each series affected may waive certain defaults
excluding a default in payment of principal of (or premium, if any) or interest
on any Debt Security. (Section 513) The Indenture will provide that in case an
Event of Default has occurred and is continuing, the Trustee shall exercise such
of its rights and powers under the Indenture, and use the same degree of care
and skill in their exercise, as a prudent man would exercise or use under the
circumstances in the conduct of his own affairs. (Section 601) Subject to such
provisions, the Trustee will be under no obligation to exercise any of its
rights or powers under the Indenture at the request of any of the Holders of
Debt Securities unless they shall have offered to the Trustee reasonable
security or indemnity against the expenses and liabilities which may be incurred
by it in complying with such request. (Section 603)
TRUSTEE
Wilmington Trust Company will be Trustee under the Indenture. The
Corporation may maintain banking relationships in the ordinary course of
business with the Trustee.
DESCRIPTION OF COMMON STOCK
The Restated Certificate of Incorporation of the Corporation authorizes
100,000,000 shares of Common Stock, $1.00 par value, of which 51,674,534 shares
were issued and outstanding as of June 30, 1992 (including 4,439,267 shares held
by an affiliate but classified as treasury stock for financial accounting
purposes only). Holders of Common Stock have no preemptive rights and are
entitled to share ratably in all assets available for distribution after payment
of preferential amounts, if any, to be distributed to the holders of the
Corporation's Preferred Stock. Holders of Common Stock do not have cumulative
voting rights in the election of directors. Holders of Common Stock are entitled
to dividends if and when declared by the Board of Directors after provision for
accrued and unpaid dividends, if any, on outstanding Preferred Stock. Any
additional shares of Common Stock issued by the Corporation will have the same
rights and privileges as shares of Common Stock now issued and outstanding.
The payment of cash dividends by Old Republic 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 Old Republic 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 1991 data, the maximum
amount payable to Old Republic as dividends by its insurance and other
wholly-owned subsidiaries during 1992 without the prior approval of their
respective regulatory authorities is approximately $181 million. However, Old
Republic does
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<PAGE> 31
not expect to distribute such amount in its entirety as dividends since
reinvested earnings are Old Republic's major source of capital to promote its
growth and support its obligations to policyholders.
CERTAIN CHARTER PROVISIONS AND MISCELLANEOUS AGREEMENTS
The Corporation's Restated Certificate of Incorporation and Bylaws and
certain other agreements to which the Corporation is a party contain certain
provisions, described below, that could delay, defer or prevent a change in
control of the Corporation if the Board of Directors determines that such a
change in control is not in the best interests of the Corporation and its
shareholders and could have the effect of making it more difficult to acquire
the Corporation or remove incumbent management.
The terms of the outstanding series of the Corporation's Preferred Stock
and the power in the Board of Directors to issue additional shares of Preferred
Stock, Common Stock and Class B Common Stock without shareholder approval could
render more difficult or discourage a merger, tender offer or proxy contest for
assumption of control by a holder of Old Republic's securities.
The Restated Certificate of Incorporation of Old Republic requires the
approval of holders of 80% of the outstanding shares of all classes of stock
entitled to vote in the election of directors considered as one class for (i) a
merger or consolidation of Old Republic with, (ii) the sale, lease, exchange,
mortgage, pledge or other disposition of all, substantially all, or any
substantial part (as defined) of the assets of Old Republic or a subsidiary to,
or (iii) the transfer of a substantial amount (as defined) of securities of Old
Republic in exchange for the securities or assets of, any other corporation,
person, or entity which is the holder of more than 10% of the outstanding shares
of Old Republic entitled to vote, considered as one class. This requirement does
not apply if the Board of Directors of Old Republic approves the transaction
under certain circumstances. This provision of the Restated Certificate of
Incorporation cannot be amended or repealed except by a vote of 80% of the
outstanding shares of all classes of stock of the Corporation entitled to vote
in the election of directors, such shares to be considered as one class.
The Restated Certificate of Incorporation of Old Republic prohibits any
merger or certain other business combinations to be effected between Old
Republic and any person or entity that owns more than 10% of Old Republic's
outstanding stock entitled to vote (an "Acquiring Entity") unless it is approved
by the holders of not less than 66 2/3% of the outstanding shares of all classes
of stock entitled to vote in the election of directors considered as one class
(other than shares beneficially owned by the Acquiring Entity) or is approved
unanimously by the Board of Directors or is in compliance with certain other
conditions. The conditions specified include a requirement that the price to be
paid to the remaining shareholders of Old Republic in cash or securities be not
less than the greatest of: (i) the highest price paid by the Acquiring Entity
for its stock in Old Republic, (ii) a price that reflects the same premium over
market price paid by the Acquiring Entity to other shareholders of Old Republic,
(iii) a price that is equal to book value of the Old Republic Common Stock, and
(iv) a price that reflects the same earnings multiple at which the Acquiring
Entity's stock is selling. This provision of the Restated Certificate of
Incorporation cannot be amended except by a vote of 66 2/3% of the outstanding
shares of all classes of stock of Old Republic entitled to vote in the election
of directors, such shares to be considered as one class, excluding stock of
which an Acquiring Entity, if any, is the beneficial owner.
Pursuant to the Corporation's Restated Certificate of Incorporation,
directors of the Corporation are divided into three classes and elected to serve
staggered three-year terms. Under Delaware law, directors serving staggered
terms can be removed from office only for cause. Additionally, special meetings
of the Corporation's shareholders for any purpose may be called by the Chairman
of the Board and must be called by the Chairman of the Board or Secretary at the
written request of a majority of the Board. Shareholders do not have the power
to call a special meeting.
In March 1987, the Board of Directors of Old Republic declared a dividend
distribution of one right ("Right") for each share of Old Republic Common Stock.
Each Right entitles the registered holder to purchase from Old Republic one
share of Old Republic Common Stock at a price of $100.00 per share, subject to
adjustment. The Rights are not exercisable until the earlier to occur of (i) 10
days following a public announcement that a person or group of affiliated or
associated persons (an "Acquiring Person")
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acquired, or obtained the right to acquire, beneficial ownership of 20% or more
of the outstanding Old Republic Common Stock or (ii) 10 days following the
commencement or announcement of an intention to make a tender offer or exchange
offer for 30% or more of such outstanding Old Republic Common Stock (the earlier
of such dates being called the "Distribution Date"). The Rights will expire on
June 26, 1997 unless earlier redeemed by Old Republic.
In the event that Old Republic were acquired in a merger or other business
combination transaction or more than 50% of its assets or earning power were
sold, proper provision shall be made so that each holder of a Right shall
thereafter have the right to receive, upon the exercise thereof at the then
current exercise price of the Right, that number of shares of common stock of
the acquiring company which at the time of such transaction would have a market
value of two times the exercise price of the Right. In the event that Old
Republic were the surviving corporation in a merger with an Acquiring Person and
Old Republic's Common Stock were not changed or exchanged, or in the event that
an Acquiring Person engages in one of a number of self-dealing transactions
specified in the Rights Agreement, proper provision shall be made so that each
holder of a Right, other than Rights that were beneficially owned by the
Acquiring Person on the Distribution Date (which will thereafter be void), will
thereafter have the right to receive upon exercise that number of shares of Old
Republic Common Stock having a market value of two times the exercise price of
the Right.
PLAN OF DISTRIBUTION
The Corporation may sell the Debt Securities on a negotiated or competitive
bid basis to or through underwriters or dealers, and also may sell the Debt
Securities directly to other purchasers or through agents. The Prospectus
Supplement with respect to the Debt Securities will set forth the terms of the
offering of the Debt Securities, including the name or names of any
underwriters, the price to the public of the Debt Securities and the proceeds to
the Corporation from such sale, any underwriting discounts and other items
constituting underwriters' compensation, any initial public offering price and
any discounts or concessions allowed or reallowed or paid to dealers. If the
Debt Securities are sold through underwriters, the Debt Securities may be
offered to the public either through underwriting syndicates represented by one
or more managing underwriters or directly by one or more of such firms. Any
initial public offering price and any discounts or concessions allowed or
reallowed or paid to dealers may be changed from time to time.
If the Debt Securities are sold directly by the Corporation or through
agents designated by the Corporation from time to time, any agent involved in
the offer or sale of the Debt Securities with respect to which this Prospectus
is delivered will be named, and any commissions payable by the Corporation to
such agent will be set forth, in the Prospectus Supplement relating thereto.
The distribution of the Debt Securities may be effected from time to time
in one or more transactions at a fixed price or prices, which may be changed, or
at market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices.
In connection with the sale of the Debt Securities, underwriters may
receive compensation from the Corporation or from purchasers of the Debt
Securities for whom they may act as agents, in the form of discounts,
concessions or commissions. Underwriters may sell the Debt Securities to or
through dealers and such dealers may receive compensation in the form of
discounts, concessions or commissions from the underwriters and/or commissions
from the purchasers for whom they may act as agents. Underwriters, dealers and
agents that participate in the distribution of Debt Securities may be deemed to
be underwriters, and any discounts or commissions received by them from the
Corporation and any profit on the resale of Debt Securities by them may be
deemed to be underwriting discounts and commissions under the Securities Act of
1933, as amended (the "Act").
Under agreements which may be entered into by the Corporation, underwriters
and agents who participate in the distribution of the Debt Securities may be
entitled to indemnification by the Corporation against certain liabilities,
including liabilities under the Act.
If so indicated in a Prospectus Supplement, the Corporation will authorize
underwriters or other persons acting as the Corporation's agents to solicit
offers by certain institutions to purchase the Debt Securities from
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<PAGE> 33
the Corporation pursuant to contracts providing for payment and delivery on a
future date. Institutions with which such contracts may be made include
commercial and savings banks, insurance companies, pension funds, investment
companies, educational and charitable institutions and others, but in all cases
such institutions must be approved by the Corporation. The obligations of any
purchaser under any such contract will be subject to the condition that the
purchase of the Debt Securities shall not at the time of delivery be prohibited
under the laws of the jurisdiction to which such purchaser is subject. The
underwriters and such other agents will not have any responsibility in respect
of the validity or performance of such contracts.
LEGAL OPINION
Unless otherwise indicated in a Prospectus Supplement relating to the Debt
Securities, the validity of the Debt Securities offered hereby will be passed
upon for the Corporation by William J. Dasso, counsel of the Corporation. As of
August 18, 1992, Mr. Dasso beneficially owned approximately 6,995 shares of
Common Stock of the Corporation.
EXPERTS
The consolidated financial statements and financial statement schedules of
Old Republic and its subsidiaries included in the Annual Report of the
Corporation on Form 10-K for the year ended December 31, 1991, as amended by
Amendment No. 1 thereto, filed under cover of a Form 8 on April 30, 1992, which
are incorporated herein by reference, have been audited by Coopers & Lybrand,
independent certified public accountants, as set forth in their reports in such
Annual Report on Form 10-K and Form 8.
All such audited financial statements and financial statement schedules
have been incorporated by reference in this Prospectus in reliance upon such
firm's reports and upon the authority of such firm as experts in accounting and
auditing.
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=========================================================
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE CORPORATION OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS SUPPLEMENT AND
THE PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY
OFFER TO BUY ANY SECURITY OTHER THAN THE DEBENTURES OFFERED BY THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY THE DEBENTURES BY ANYONE IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
---------------------------
TABLE OF CONTENTS
Prospectus Supplement
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................... S-2
Use of Proceeds.......................... S-4
Capitalization........................... S-4
Description of Debentures................ S-5
Underwriting............................. S-8
Legal Opinions........................... S-8
Prospectus
Available Information.................... 2
Incorporation of Certain Documents by
Reference.............................. 2
Prospectus Summary....................... 3
The Corporation.......................... 4
Use of Proceeds.......................... 5
Capitalization........................... 5
Selected Consolidated Financial Data..... 6
Ratio of Earnings to Fixed Charges....... 7
Management Analysis of Financial Position
and Results of Operations.............. 7
Business................................. 11
Description of Debt Securities........... 16
Description of Common Stock.............. 22
Plan of Distribution..................... 24
Legal Opinion............................ 25
Experts.................................. 25
</TABLE>
=========================================================
=========================================================
$115,000,000
[OLD REPUBLIC INTERNATIONAL CORPORATION LOGO]
% Debentures
Due , 2007
---------------------------
PROSPECTUS SUPPLEMENT
June , 1997
---------------------------
LEHMAN BROTHERS
EVEREN SECURITIES, INC.
J.P. MORGAN & CO.
=========================================================
