SECURITIES AND EXCHANGE COMMISSION
OF THE SECURITIES EXCHANGE ACT OF 1934
FORM 10 - Q
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended March 31, 1999 or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934
Commission File Number 0-4625
OLD REPUBLIC INTERNATIONAL CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware No. 36-2678171
- ------------------------------- ----------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
307 North Michigan Avenue, Chicago, Illinois 60601
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(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: 312-346-8100
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.Yes _X_ No ___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the period covered by this report.
Shares Outstanding
Class March 31, 1999
--------------------------- --------------------------
Common Stock / $1 par value 131,821,767
There are 14 pages contained in this report.
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2
OLD REPUBLIC INTERNATIONAL CORPORATION
Report on Form 10-Q / March 31, 1999
INDEX
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PAGE NO.
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PART I FINANCIAL INFORMATION:
CONSOLIDATED SUMMARY BALANCE SHEETS 3
CONSOLIDATED SUMMARY STATEMENTS OF INCOME 4
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME 5
CONSOLIDATED STATEMENTS OF CASH FLOWS 6
NOTES TO CONSOLIDATED SUMMARY FINANCIAL STATEMENTS 7 - 9
MANAGEMENT ANALYSIS OF FINANCIAL POSITION AND
RESULTS OF OPERATIONS 10 - 12
PART II OTHER INFORMATION 13 & 14
<PAGE>
3
<TABLE>
OLD REPUBLIC INTERNATIONAL CORPORATION
CONSOLIDATED SUMMARY BALANCE SHEETS (Unaudited)
($ in Millions)
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March 31, December 31,
1999 1998
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Assets
<S> <C> <C>
Investments: Held to maturity:
Fixed maturity securities (at amortized cost)
(fair value: $2,392.2 and $2,422.2) $2,323.0 $2,332.3
Other long-term investments (at cost) 33.6 25.1
------------- -------------
Total 2,356.6 2,357.5
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Available for sale:
Fixed maturity securities (at fair value) (cost: $1,905.5 and $1,877.8) 1,951.3 1,954.4
Equity securities (at fair value) (cost: $117.8 and $117.0) 144.9 164.8
Short-term investments (at fair value which approximates cost) 279.2 377.6
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Total 2,375.6 2,497.0
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Total investments 4,732.3 4,854.5
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Other Assets: Cash 26.7 22.9
Accrued investment income 69.3 71.1
Accounts and notes receivable 313.2 290.0
Reinsurance balances and funds held 81.8 86.3
Reinsurance recoverable: Paid losses 23.3 31.2
Policy and claim reserves 1,281.9 1,292.9
Deferred policy acquisition costs 146.4 143.9
Sundry assets 225.7 226.4
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2,168.6 2,165.2
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Total Assets $6,901.0 $7,019.7
============= =============
- ----------------------------------------------------------------------------------------------------------------------------------
Liabilities, Preferred Stock and
Common Shareholders' Equity
Liabilities: Future policy benefits $123.7 $187.6
Losses, claims and settlement expenses 3,378.2 3,406.5
Unearned premiums 352.5 360.1
Other policyholders' benefits and funds 50.8 52.5
------------- -------------
Total policy liabilities and accruals 3,905.4 4,006.9
Commissions, expenses, fees and taxes 129.7 138.8
Reinsurance balances and funds 133.4 130.5
Federal income tax payable: Current 8.8 6.9
Deferred 179.9 179.8
Debt and debt equivalents 144.4 145.1
Sundry liabilities 97.6 105.9
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Total liabilities 4,599.5 4,714.2
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Preferred
Stock: Convertible preferred stock 0.9 1.2
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Common Common stock 156.4 156.3
Shareholders' Additional paid-in capital 625.7 624.5
Equity: Unallocated shares - ESSOP (5.1) (5.1)
Retained earnings 1,770.5 1,709.9
Accumulated other comprehensive income 38.3 70.2
Treasury stock (at cost) (285.5) (251.6)
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Total Common Shareholders' Equity 2,300.4 2,304.2
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Total Liabilities, Preferred Stock
and Common Shareholders' Equity $6,901.0 $7,019.7
============= =============
</TABLE>
See accompanying notes.
<PAGE>
4
<TABLE>
OLD REPUBLIC INTERNATIONAL CORPORATION
CONSOLIDATED SUMMARY STATEMENTS OF INCOME (Unaudited)
($ in Millions, Except Common Share Data)
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Quarters Ended
March 31,
-------------------------------
1999 1998
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<S> <C> <C>
Revenues: Net premiums earned $396.1 $359.6
Title, escrow and other fees 57.3 49.8
Net investment income 65.4 68.5
Realized investment gains 14.7 20.0
Other income 7.6 8.4
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Net revenues 541.2 506.5
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Expenses: Benefits, claims and settlement expenses 200.9 185.7
Underwriting, acquisition and
insurance expenses 231.5 198.2
Interest and other expenses 3.3 3.5
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Total expenses 435.8 387.5
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Income before income taxes and items below 105.4 118.9
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Income Taxes: Currently payable 14.0 23.6
Deferred 18.5 14.3
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Total income taxes 32.6 37.9
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72.7 81.0
Other items - net 1.0 0.5
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Net Income: $73.8 $81.5
============= =============
Net Income
Per Share: Basic $0.56 $0.58
============= =============
Diluted $0.55 $0.58
============= =============
Dividends Per
Common Share: Cash dividends $0.100 $0.087
============= =============
Stock dividends --% 50%
============= =============
Average number of common and common
equivalent shares outstanding:
Basic 132,581,583 138,541,904
============= =============
Diluted 133,786,003 140,824,777
============= =============
</TABLE>
See accompanying notes.
<PAGE>
5
<TABLE>
OLD REPUBLIC INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
($ in Millions)
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Quarters Ended
March 31,
-------------------------------
1999 1998
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<S> <C> <C>
Net income as reported $73.8 $81.5
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Other comprehensive income:
Foreign currency translation adjustment 0.3 0.3
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Unrealized gains (losses) on securities:
Unrealized gains (losses) arising during period (35.0) 13.3
Less: elimination of pre-tax realized gains
included in income as reported 14.7 20.0
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Pre-tax unrealized losses on securities (49.7) (6.6)
Deferred income tax credits (17.4) (2.3)
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Net unrealized losses on securities (32.3) (4.3)
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Net deletions (31.9) (4.0)
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Comprehensive income $41.8 $77.5
============= =============
</TABLE>
See accompanying notes.
<PAGE>
6
<TABLE>
OLD REPUBLIC INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
($ in Millions)
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Quarters Ended
March 31,
-------------------------------
1999 1998
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $73.8 $81.5
Adjustment to reconcile net income to
net cash provided by operating activities:
Deferred policy acquisition costs (1.9) 0.1
Premiums and other receivables (9.7) 14.9
Unpaid claims and related items (14.9) (9.6)
Future policy benefits and policyholders' funds (10.1) (12.5)
Income taxes 19.8 26.2
Reinsurance balances and funds 14.9 (0.3)
Accounts payable, accrued expenses and other (15.4) (12.1)
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Total 56.2 88.1
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Cash flows from investing activities:
Sales of fixed maturity securities:
Held to maturity:
Maturities and early calls 31.4 34.3
Available for sale:
Maturities and early calls 24.5 33.2
Other 36.9 50.8
Sales of equity securities 11.2 7.0
Sales of other investments 0.2 1.3
Sales of fixed assets for company use 0.2 0.1
Purchases of fixed maturity securities:
Held to maturity (49.0) (88.9)
Available for sale (121.4) (103.9)
Purchases of equity securities (12.0) (35.4)
Purchases of other investments (8.6) (10.6)
Purchases of fixed assets for company use (4.1) (8.0)
Purchases of investment in subsidiaries --- (1.9)
Proceeds from sale of subsidiary 25.3 ---
Cash and short-term investments of subsidiary sold (31.4) ---
Other-net (8.9) 0.2
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Total (105.6) (121.8)
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Cash flows from financing activities:
Increase in term loans 10.0 4.0
Issuance of preferred and common stocks 1.1 10.5
Issuance of debentures and notes --- 1.1
Repayments of term loans (10.0) ---
Redemption of debentures and notes (0.6) (0.6)
Dividends on common shares (13.1) (12.0)
Dividends on preferred shares --- ---
Purchase of treasury stock (33.8) (15.6)
Other-net 1.4 0.7
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Total (45.1) (11.8)
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Increase (decrease) in cash and short-term investments (94.5) (45.5)
Cash and short-term investments, beginning of period 400.5 355.0
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Cash and short-term investments, end of period $306.0 $309.4
============= =============
Supplemental disclosure of cash flow information:
Cash paid during the period for: Interest $0.3 $0.5
============= =============
Income taxes $11.9 $13.1
============= =============
</TABLE>
See accompanying notes.
<PAGE>
7
OLD REPUBLIC INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED SUMMARY FINANCIAL STATEMENTS (Unaudited)
($ in Millions, Except Share Data)
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1. Accounting Policies and Basis of Presentation:
---------------------------------------------
The accompanying consolidated summary financial statements have been
prepared in conformity with generally accepted accounting principles as
described in the Corporation's latest annual report to shareholders or as
disclosed herein. The financial accounting and reporting process relies on
estimates and on the exercise of judgement, but in the opinion of management
all adjustments, consisting of normal recurring accruals, necessary to a
fair presentation of the accompanying statements have been reflected
therein. Realized gains or losses on dispositions of investment securities
have been reflected in the operating results for each period presented.
2. Common Share Data:
-----------------
Common share data has been retroactively adjusted to reflect all stock
dividends and splits. The following table provides a reconciliation of the
income before extraordinary items and number of shares used in basic and
diluted earnings per share calculations.
<TABLE>
Quarters Ended
March 31,
-------------------------------
1999 1998
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<S> <C> <C>
Numerator:
Income before extraordinary item......................................... $ 73.8 $ 81.5
Less Preferred stock dividends........................................... -- --
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Numerator for basic earnings per share -
income available to common stockholders............................... 73.7 81.5
Effect of dilutive securities:
Convertible preferred stock dividends.................................... -- --
------------- -------------
Numerator for diluted earnings per share -
income available to common stockholders
after assumed conversions................................................ $ 73.8 $ 81.5
============= =============
Denominator:
Denominator for basic earnings per share -
weighted-average shares............................................... 132,581,583 138,541,904
Effect of dilutive securities:
Stock options............................................................ 1,000,773 2,044,854
Convertible preferred stock.............................................. 203,647 238,019
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Dilutive potential common shares......................................... 1,204,420 2,282,873
------------- -------------
Denominator for diluted earnings per share -
adjusted weighted-average shares and
assumed conversions...................................................... 133,786,003 140,824,777
============= =============
Basic earnings per share.................................................... $ .56 $ .58
============= =============
Diluted earnings per share.................................................. $ .55 $ .58
============= =============
</TABLE>
3. Unrealized Appreciation of Investments:
--------------------------------------
Cumulative net unrealized gains on fixed maturity securities available for
sale and equity securities credited to a separate account in common
shareholders' equity amounted to $47.9 at March 31, 1999. Unrealized
appreciation of investments, before applicable income taxes of $26.2, at
March 31, 1999 included gross unrealized gains and (losses) of $89.3 and
$(15.1), respectively.
For the quarters ended March 31, 1999 and 1998, net unrealized depreciation
of investments, net of deferred income taxes, amounted to $32.3 and $4.3,
respectively.
<PAGE>
8
4. Information About Segments of Business:
--------------------------------------
The Corporation's business segments are organized as the General Insurance
(property and liability insurance), Mortgage Guaranty, Title Insurance and
Life Insurance Groups. The contributions of Old Republic's insurance
industry segments to consolidated revenues and operating results, and
certain balance sheet data pertaining thereto are shown in the following
tables on the basis of generally accepted accounting principles ("GAAP").
Each of the Corporation's segments underwrites and services only those
insurance coverages which may be written by it pursuant to state insurance
regulations and corporate charter provisions.
<TABLE>
Segment Reporting
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Quarters Ended March 31,
-------------------------------
1999 1998
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<S> <C> <C>
General Insurance Group:
Net premiums earned...................................................... $ 214.0 $ 208.9
Net investment income and other income(a)................................ 50.1 53.0
------------- --------------
Total................................................................. $ 264.1 $ 262.0
============= ==============
Income before taxes...................................................... $ 35.3 $ 51.8
============= ==============
Income tax expense....................................................... $ 8.7 $ 15.1
============= ==============
Mortgage Guaranty Group:
Net premiums earned...................................................... $ 75.7 $ 71.3
Net investment income and other income(a)................................ 14.1 13.7
------------- --------------
Total................................................................. $ 89.9 $ 85.1
============= ==============
Income before taxes...................................................... $ 39.7 $ 33.9
============= ==============
Income tax expense....................................................... $ 13.1 $ 11.3
============= ==============
Title Insurance Group:
Net premiums earned...................................................... $ 89.1 $ 64.0
Title, escrow and other fees ........................................... 57.3 49.8
------------- --------------
Sub-total............................................................. 146.4 113.8
Net investment income and other income(a)................................ 5.4 4.9
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Total................................................................. $ 151.9 $ 118.7
============= ==============
Income before taxes...................................................... $ 16.8 $ 12.5
============= ==============
Income tax expense....................................................... $ 5.7 $ 4.2
============= ==============
Life Insurance Group (c):
Net premiums earned...................................................... $ 17.2 $ 15.2
Net investment income and other income(a)................................ 2.1 3.3
------------- --------------
Total................................................................. $ 19.4 $ 18.6
============= ==============
Income before taxes...................................................... $ .4 $ 1.5
============= ==============
Income tax expense....................................................... $ .1 $ .5
============= ==============
</TABLE>
<PAGE>
9
<TABLE>
Reconciliations of Segments to Consolidated
- ----------------------------------------------------------------------------------------------------------------------------
Quarters Ended March 31,
-------------------------------
1999 1998
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<S> <C> <C>
Revenues:
Total revenues for reportable segments................................... $ 525.4 $ 484.6
Net realized investment gains............................................ 14.7 20.0
Other revenues........................................................... 2.3 3.1
Elimination of intersegment revenues(b).................................. (1.2) (1.2)
------------- --------------
Total consolidated revenues........................................... $ 541.2 $ 506.5
============= ==============
Income before taxes:
Total income before taxes of reportable segments......................... $ 92.4 $ 99.8
Net realized investment gains............................................ 14.7 20.0
Other sources - net...................................................... (1.6) (.6)
Elimination of intersegment profits(b)................................... (.1) (.2)
------------- --------------
Income before income taxes and
extraordinary items................................................... $ 105.4 $ 118.9
============= ==============
</TABLE>
- ---------
In the above tables, net premiums earned on a GAAP basis differ slightly from
statutory amounts due to certain differences in calculations of unearned premium
reserves under each accounting method.
(a) Including unallocated investment income derived from invested capital and
surplus funds./(b) Represents results of holding company parent, consolidation
eliminating adjustments, and general corporate expenses, as applicable./(c)In
the first quarter of 1999, the Company sold its small annuity book of business;
this had no material effect on Old Republic's consolidated results or financial
position.
<PAGE>
10
OLD REPUBLIC INTERNATIONAL CORPORATION
MANAGEMENT ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS
Quarters Ended March 31, 1999 and 1998
- --------------------------------------------------------------------------------
OVERVIEW
This analysis pertains to the consolidated accounts of Old Republic
International Corporation. The Company conducts its business through four major
segments, namely its General (property and liability coverages), Mortgage
Guaranty, Title, and Life insurance groups.
FINANCIAL POSITION
Old Republic's financial position at March 31, 1999 reflected decreases in
assets, liabilities and common shareholders' equity of 1.7%, 2.4% and .2%,
respectively, when compared to the immediately preceding year-end. Cash and
invested assets represented 70.0% and 70.5% of consolidated assets as of March
31, 1999 and December 31, 1998 respectively. Consolidated operating cash flow
was positive at $56.2 million in the latest quarter, compared to $88.1 million
in the same period of 1998, but the invested asset base declined principally as
a result of the Company's stock buy-back program and the sale of a largely
inactive life insurance subsidiary in early 1999.
Relatively high short-term maturity investment positions continued to be
maintained as of March 31, 1999 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 investment yields. Accordingly, the future level of
short-term investments will vary and respond to the dynamics of these factors
and may, as a result, increase or decrease from current levels. During the first
quarter of 1999, the Corporation committed substantially all investable funds in
short to intermediate-term fixed maturity securities with an emphasis on
tax-exempt bonds. Old Republic continues to adhere to its long-term policy of
investing primarily in investment grade, marketable securities; the Corporation
has not directed its investable funds to so-called "junk bonds" or derivative
types of securities. During the first quarter of 1999, Old Republic's investment
in equity securities decreased by 12.0% vis-a-vis the related invested balance
at year-end 1998 due to securities sales and unrealized losses during the
period. As of March 31, 1999, the carrying value of fixed maturity securities in
default as to principal or interest was immaterial in relation to consolidated
assets or shareholders' equity.
The parent holding company has met its liquidity and capital needs principally
through dividends paid by its subsidiaries. The insurance subsidiaries' ability
to pay cash dividends to the parent company is generally restricted by law or
subject to approval of the insurance regulatory authorities of the states in
which they are domiciled. Additionally, the terms of guarantees by the Company
of bank loans to the trustee of the Company's Employees Savings and Stock
Ownership Plan restrict the amount of debt the Company may incur; this covenant
is being met.
Old Republic's capitalization of $2.44 billion at March 31, 1999 consisted of
debt and debt equivalents of $144.4 million, convertible preferred stock of $.9
million, and common shareholders' equity of $2.30 billion. The decrease in the
common shareholders' equity account during the quarter ended March 31, 1999
reflects primarily the retention of earnings in excess of dividend requirements,
a moderate decrease during the latest quarter in the value of bonds and stocks
carried at market values and the reacquisition of $33.8 million of common shares
pursuant to a previously announced stock buy-back program.
RESULTS OF OPERATIONS
Revenues:
Consolidated net premiums and fees earned in the first quarter of 1999 amounted
to $453.4 million and were 10.7% above the amount reported for the first quarter
of 1998. For the first three months of 1999, the Company's General Insurance
Group posted relatively flat earned premium volume of $214.0 million as a result
of a continuing soft pricing environment. Premiums for the Mortgage Guaranty
Group increased by 6.1% to $75.7 million from $71.3 million in the year-ago
quarter. Title Group premium and fee revenues increased 28.6% to $146.4 million
in the first quarter of 1999 when compared to the same quarter of 1998. The
Mortgage Guaranty Group and the Title Group benefitted from the positive effects
of favorable mortgage rates, greater housing price appreciation and strong
mortgage finance activity. The Life and Health Group's premium volume increased
to $17.2 million, a 13.0% increase when compared to the same quarter of 1998, as
a result of greater term life and credit insurance sales.
<PAGE>
11
Consolidated net investment income was $65.4 million in the first quarter of
1999 compared to $68.5 million in the same quarter of 1998. This revenue source
reflects an invested asset base that is down slightly from a year ago and a
greater commitment to tax-exempt fixed maturity securities. The average
annualized yield on investments was approximately 5.5% and 5.8% at the end of
March 31, 1999 and 1998, respectively. This yield pattern reflects at once the
relatively short maturity of Old Republic's fixed maturity securities portfolio,
changes in interest rates at various times and the commitment of a larger
percentage of investable funds to tax-exempt fixed maturity securities that
typically bear lower current yields.
The Company's investment policies have not been designed to maximize realized
investment gains. Realized gains of $14.7 million in the first quarter of 1999
were mostly due to the sale of equity securities. Dispositions of securities are
primarily the result of scheduled maturities of bonds and notes and sales of
equity securities. For the first quarter of 1999, 60.3% of total dispositions
represented maturities and early calls of existing holdings; for the year 1998
these transactions amounted to 58.3% of the total dispositions.
Expenses:
Consolidated benefit, claim and settlement costs, as a percentage of net
premiums and fees earned, were approximately 44% and 45% in the first quarters
of 1999 and 1998, respectively. Consolidated claims experience for property and
liability coverages were affected favorably by reduced costs emanating from
involuntary workers' compensation pools, but much greater loss costs in
transportation insurance lines in particular seriously impacted underwriting
performance. Mortgage Guaranty claim costs were lower during the first quarter
of 1999 compared to the same period in 1998 mostly due to the stable economic
and employment conditions which usually lead to reduced mortgage defaults. Title
claims costs were slightly higher in 1999, while Life Group claim costs were
higher in the latest quarter due to greater severity of travel accident claims.
The ratio of consolidated underwriting, acquisition and insurance expenses to
net premiums and fees earned was approximately 51% and 48% in the first quarters
of 1999 and 1998, respectively. Variations in these ratios reflect a continually
changing mix of coverages sold and attendant costs of producing business. The
property and liability segment's expense ratio increased slightly due to a
greater increase in operating expenses than premium revenues. The mortgage
guaranty segment's expense ratio moved up due to higher costs associated with
continued enhancement of information systems and greater contract underwriting
services.The title insurance expense ratio was lower in the first quarter of
1999 compared to the same period in 1998 due in part to an increase in premium
and fees volume without a proportional increase in expenses. Consolidated
interest and other charges were approximately the same for both periods.
Pre-Tax and Net Income:
Consolidated income before taxes decreased by 8.4% in the first quarter of 1999
when compared to the same period one year ago. The Corporation's Mortgage
Guaranty and Title insurance segments reflected higher pre-tax operating
earnings; General and Life Insurance operations posted decreases in pre-tax
operating earnings in this year's first quarter; and realized gains on sales of
securities were lower in the most recent quarterly period.
The effective consolidated income tax rate was 31.0% and 31.9% in the first
quarters of 1999 and 1998, 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/service income on the other
hand.
Year 2000 Issues:
The Company and its subsidiaries have been aware for several years of the issues
associated with programming codes in existing computer systems as the Year 2000
approaches. Most Old Republic subsidiaries are operated with reasonable
autonomy, and, accordingly, Year 2000 issues are independently managed at each
of the operating entities. Simply stated, Year 2000 issues stem from computer
programs that were written in earlier years with only two digits to specify a
year, as opposed to four digits; such programs may therefore be unable to
interpret dates beyond 1999, which could cause a system failure or other
computer errors that could lead to a disruption of operations.
Year 2000 issues could adversely affect the Old Republic subsidiaries' computer
systems, and such other systems as communications, facilities management,
service-related equipment and systems of customers, vendors and other important
third party service providers. Possible adverse consequences include, but are
not limited to, the inability to transact business, inability to execute
transactions through financial institutions and the occurrence of Year
2000-related losses under certain insurance contracts. Accordingly, the Company
could suffer material adverse financial effects if failure by major
subsidiaries, significant vendors, important third parties or various
governmental bodies to properly correct Year 2000 issues were to occur. The
possible financial impact of all such effects cannot currently be estimated
since the Company and its subsidiaries do not operate in a vacuum and cannot
control the situations or actions of the various outside entities with which
they deal.
<PAGE>
12
Old Republic's subsidiaries have substantialy completed, the identification and
implementation of changes, and the testing of systems affected by Year 2000
issues. Confirmations of Year 2000 compliance from principal customers, vendors
and other important third party relationships are in process of being
circulated. While this process is not completed, the Company is not currently
aware of any principal customer, vendor, or other important third party whose
Year 2000 projects will not be completed in a timely manner.
The costs of identifying, implementing and testing the required changes has not
been material to operating results. A significant portion of these costs were
not incremental as the Company and its subsidiaries have mostly utilized
existing resources.
The Company's subsidiaries have commenced consideration of contingency plans in
the event remediation efforts of Year 2000 issues are unsuccessful. Such plans
should be more fully developed in 1999, to the extent deemed applicable and
practicable.
OTHER INFORMATION
Reference is here made to "Financial Information Relating to Segments of
Business" appearing elsewhere herein.
Historical data pertaining to the operating performance, liquidity, and other
financial matters applicable to an insurance enterprise such as Old Republic are
not necessarily indicative of results to be achieved in succeeding years. In
addition to the factors cited below, the long-term nature of the insurance
business, seasonal and annual patterns in premium production and incidence of
claims, changes in yields obtained on invested assets, changes in government
policies and free markets affecting inflation rates and general economic
conditions, and changes in legal precedents or the application of law affecting
the settlement of disputed claims can have a bearing on period-to-period
comparisons and future operating results.
Any forward-looking commentary or inferences contained in this report involve,
of necessity, assumptions, uncertainties, and risks that may affect the
Company's future performance. With regard to Old Republic's General insurance
segment, its results can be affected in particular by the level of market
competition which is typically a function of available capital and expected
returns on such capital among competitors, the levels of interest and inflation
rates, as well as periodic changes in claim frequency and severity patterns
caused by natural disasters, weather conditions, accidents, illnesses and
work-related injuries. Mortgage Guaranty and Title insurance results can be
affected by such factors as changes in national and regional housing demand and
values, the availability and cost of mortgage loans, employment trends, and
default rates on mortgage loans; mortgage guaranty results may also be affected
by various risk-sharing arrangements with business producers as well as the risk
management and pricing policies of government sponsored enterprises. Life and
disability insurance results can be impacted by the levels of employment and
consumer spending, as well as mortality and health trends. At the holding
company level, results are affected mostly by the amount of debt outstanding and
its cost.
Any forward-looking commentaries speak only as of their dates. Old Republic
undertakes no obligation to publicly update or revise such comments, whether as
a result of new information, future events or otherwise, and accordingly they
may not be unduly relied upon.
<PAGE>
13
OLD REPUBLIC INTERNATIONAL CORPORATION
FORM 10 - Q
PART II - OTHER INFORMATION
- --------------------------------------------------------------------------------
Item 6 - Reports on Form 8-K
- ----------------------------
(a) Reports on Form 8-K
1. The registrant has not filed any reports on Form 8-K during the quarter
for which this report is filed.
Items other than those listed are omitted because they are not required.
<PAGE>
14
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
Old Republic International Corporation
--------------------------------------
(Registrant)
Date: May 13, 1999
------------------
/s/ Paul D. Adams
--------------------------------------
P. D. Adams
Senior Vice President &
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
This schedule contains summary financial information extracted from
Old Republic International's consolidated balance sheet and consolidated
statement of income and is qualified in its entirety by reference to such
financial statement.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<DEBT-HELD-FOR-SALE> 1,951
<DEBT-CARRYING-VALUE> 2,323
<DEBT-MARKET-VALUE> 2,392
<EQUITIES> 144
<MORTGAGE> 7
<REAL-ESTATE> 0
<TOTAL-INVEST> 4,732
<CASH> 26
<RECOVER-REINSURE> 23
<DEFERRED-ACQUISITION> 146
<TOTAL-ASSETS> 6,901
<POLICY-LOSSES> 3,501
<UNEARNED-PREMIUMS> 352
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 50
<NOTES-PAYABLE> 144
0
0
<COMMON> 156
<OTHER-SE> 2,144
<TOTAL-LIABILITY-AND-EQUITY> 6,901
396
<INVESTMENT-INCOME> 65
<INVESTMENT-GAINS> 14
<OTHER-INCOME> 7
<BENEFITS> 200
<UNDERWRITING-AMORTIZATION> 54
<UNDERWRITING-OTHER> 180
<INCOME-PRETAX> 105
<INCOME-TAX> 32
<INCOME-CONTINUING> 73
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 73
<EPS-PRIMARY> .56
<EPS-DILUTED> .55
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
