Item 1 - Business
(a) General Development of Business. Old Republic International Corporation is a Chicago-based insurance holding company with subsidiaries engaged in the general (property & liability), title, mortgage guaranty, and life (life & disability) insurance businesses. In this report, "Old Republic", "the Corporation", or "the Company" refers to Old Republic International Corporation and its subsidiaries as the context requires. The aforementioned insurance segments are organized as the Old Republic General, Title, Mortgage Guaranty, and Life Groups, and references herein to such groups apply to the Company's subsidiaries engaged in the respective segments of business.
Financial Information Relating to Segments of Business (a)
The contributions to net revenues, income (loss) before taxes and before the cumulative effect of accounting changes of each Old Republic segment are set forth below for the years shown, together with their respective assets at the end of each year. The information below should be read in conjunction with the consolidated financial statements, the notes thereto, and the "Management Analysis of Financial Position and Results of Operations" appearing elsewhere herein.
General Insurance Group
Through its General Insurance Group subsidiaries, the Corporation assumes risks and performs related risk management and marketing services pertaining to a large variety of property and liability commercial insurance coverages. Old Republic does not have a meaningful participation in personal lines of insurance.
Liability Coverages: Workers' compensation, general liability (including the general liability portion of commercial package policies), and commercial automobile full coverage protection are the major classes of insurance underwritten for businesses and public entities such as municipalities. Within these classes of insurance, Old Republic specializes in a number of industries, most prominently the transportation, coal and energy services, construction and forest product industries. Such business is primarily produced through agency and brokerage channels. The rates charged for all workers' compensation insurance are generally regulated by the various states. It is therefore possible that the rate increases necessary to cover any expansion of benefits under state laws or increases in claim frequency or severity may not always be granted soon enough to enable insurers to fully recover the amount of the benefits they must pay.
During the past ten years, the Corporation has steadily diversified its General Insurance Group business. This diversification has been achieved through a combination of internal growth, the establishment of new subsidiaries, and through selective mergers with other companies. For 1993, production of direct workers' compensation premiums accounted for 34.0% of consolidated direct premiums written by the General Insurance Group. For the same year, general liability and commercial automobile direct insurance premiums amounted to 11.3% and 31.0%, respectively, of consolidated direct premiums written.
During the past decade, specialty programs have also been expanded or initiated to insure corporations' exposures to directors' and officers' and errors and omissions liability, to cover owners and operators of private aircraft for hull and liability exposures, and insurance for grain elevators and LPG gas operations.
The Corporation assumes (on both treaty and facultative bases) a moderate amount of reinsurance business underwritten by other insurance or reinsurance companies. Most of this business encompasses workers' compensation, general and automobile liability lines, as well as a moderate amount of property exposures.
Property and Other Coverages: Old Republic's property insurance business includes physical damage insurance on commercial automobile and trucking risks. A small volume of business is represented by fire and other physical perils for houses, mobile homes and commercial properties. All such insurance is produced either directly, through agents or financial intermediaries, such as finance companies, and on a reinsurance assumed basis.
Fidelity and surety coverages are underwritten through agents by the Old Republic Surety Group, Inc.
Old Republic Insured Credit Services, Inc., a wholly-owned subsidiary, has marketed loan and retail installment sales credit guaranty insurance since 1955 through commercial banks and thrift institutions. This coverage provides lenders with a guaranty against defaults on home equity and home improvement loans and installment sales contracts.
Auto Warranty and Home Warranty, while still relatively small businesses, are marketed directly by the Corporation.
Title Insurance Group
The title insurance business consists primarily of the issuance of policies to real estate purchasers and investors based upon searches of the public records which contain information concerning interests in real property. The policy insures against losses arising out of defects, liens and encumbrances affecting the insured title and not excluded or excepted from the coverage of the policy.
There are two basic types of title insurance policies: lenders' policies and owners' policies. Both are issued for a onetime premium. Most mortgages made in the United States are extended by savings and loan associations, mortgage bankers, savings and commercial banks, state and federal agencies, and life insurance companies. The financial institutions secure title insurance policies to protect their mortgagees' interest in the real property. This protection remains in effect for as long as the mortgagee has an interest in the property. A separate title insurance policy is issued to the owner of the real estate. An owner's policy of title insurance protects an owner's interest in the title to the property.
The premiums charged for the issuance of title insurance policies vary with the policy amount and the type of policy issued. The premium is collected in full when the real estate transaction is closed, there being no recurring fee thereafter. In many areas, premiums charged on subsequent policies on the same land may be reduced, depending generally upon the time elapsed between issuance of the previous policies and the nature of the transactions for which the policies are issued. Most of the charge to the consumer relates to title services rendered in conjunction with the issuance of a policy rather than to the possibility of loss due to risks insured against. Accordingly, the service performed by a title insurer relates for the most part to the prevention of loss rather than to the assumption of the risk of loss.
In connection with its title insurance operations, the Corporation also provides escrow facilities, services for the disbursement of construction funds, and other services pertaining to real estate transfers.
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 21% of the Corporation's residential real estate loan insurance business is currently originated by savings and loan associations, and the remaining 79% 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 the mortgage guaranty or other coverages in the Corporation's business since the profitability of its insurance products is not tied to any significant degree to the financial well-being of these institutions. While it is possible that the failure of a large number of such institutions could increase the competition for sales of certain insurance products to the surviving institutions, it is also likely that other institutions or providers of financial services would emerge to take their place. The Corporation's mortgage guaranty insurance in force at December 31, 1993 was originally produced by about 2,800 different lending institutions, and 1,500 such institutions originated business in 1993.
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 98% of the residential real estate loan insurance in force at December 31, 1993 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 Mort- gage Corporation. Upon approval of an application for insurance of a loan, the Corporation issues a commitment to insure the loan; this is followed by a certificate of insurance when the loan is consummated.
Life Insurance Group
Credit & Other Life and Disability: Old Republic markets and writes consumer credit life and disability insurance primarily through consumer finance companies, banks, savings and loan associations and automobile dealers. Approx- imately 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: In the past, Old Republic marketed annuity policies, some of which remain outstanding, through securities dealers in New York State. These policies provide for annuity benefits based on premiums paid and accumulating with interest over time. Since 1985, the volume of annuity business has been inconsequential because the Corporation has been unwilling to invest in so-called "junk bonds" or illiquid investments to help assure higher, more competitive guaranteed rates. Consolidated Underwriting Statistics The following table reflects underwriting statistics covering: 1) premiums together with loss, expense, and policyholders' dividend ratios for the major coverages underwritten solely in the General, Title, and Mortgage Guaranty in- surance groups, and disability/accident & health coverages underwritten directly or through reinsurance in both the Life and General Insurance groups; 2) a summary of net retained life insurance in force at the end of the years shown:
Variations in the loss (including related claim settlement expense) ratios are caused by changes in the frequency and severity of claims incurred, changes in premium rates and the level of premium refunds, and periodic changes in claim and claim expense reserve estimates resulting from ongoing reevaluations of reported and unreported claims and claim expenses. Loss, expense, policyholders' dividends, and composite ratios have been rounded to the nearest percentage point. The loss ratios include loss adjustment expenses where appropriate. Policyholders' dividends are a reflection of changes in loss experience for individual or groups of policies, rather than overall results, and should be viewed in conjunction with loss ratio trends; policyholders' dividends apply principally to workers' compensation insurance. General Insurance Group loss ratios for workers' compensation and liability insurance coverages in particular may fluctuate due to a variety of factors. The inherent volatility of claims experience due to chance events in any one year, greater loss costs emanating from involuntary business (i.e. from industry-wide insurance pools and associations in which participation is basically mandatory), and added provisions for loss costs not recoverable from assuming reinsurers which have experienced financial difficulties are some of the major factors influencing comparisons of loss ratios between years. The Company generally underwrites concurrently workers' compensation, commercial automobile (liability and physical damage), and general liability insurance coverages for a large number of customers. Accordingly, an evaluation of trends in premiums, loss and dividend ratios for these coverages should take such concurrent underwriting assumptions into account. The Title Insurance Group loss ratios for the years presented are relatively the same as there has been no material change in frequency and severity trends in the last three years. In 1993 and 1992, however, additional claim provisions of $13.3 million and $15.0 million, respectively, covering various escrow losses in process of final settlement increased the loss ratio compared to premiums and fees earned by 3% and 4%, respectively. The improvement in recent years in the mortgage guaranty loss ratio is due to lower claim frequency and the beneficial effects of higher premium rates. The increases in net ordinary life insurance in force, is attributed to the introduction beginning in 1990 of more favorably priced life products that have received greater market acceptance.
General Insurance Claim Reserves
The Corporation's property and liability insurance subsidiaries establish claim reserves which consist of estimates to settle: a) reported claims; b) claims which have been incurred as of each balance sheet date but have not as yet been reported ("IBNR") to the insurance subsidiaries; and c) the direct costs, (such as attorneys' fees which are allocable to individual claims) and indirect costs (such as salaries and rent applicable to the overall administration of the claim department) to administer known and IBNR claims. Such claim reserves, except as to classification in the Consolidated Balance Sheet as of December 31, 1993 in terms of gross and reinsured portions, are reported for financial and regulatory reporting purposes at amounts that are substantially the same. The establishment of claim reserves by property and liability insurers, such as the Corporation's General Insurance Group, is a reasonably complex and dynamic process influenced by a large variety of factors. These include past experience applicable to the anticipated costs of various types of claims, continually evolving and changing legal theories emanating from the judicial system, actuarial studies, the professional experience and expertise of the Company's claim departments' personnel or attorneys and independent adjusters retained to handle individual claims, the effect of inflationary trends on future claim settlement costs, and periodic changes in claim frequency patterns such as those caused by natural disasters, illnesses, accidents, or work-related injuries. Consequently, the reserve-setting process relies on the judgments and opinions of a large number of persons, on historical precedent and trends, and on expectations as to future developments. At any point in time, the Company and the industry are exposed to possibly higher than anticipated claim costs due to the aforementioned factors, the evolution, interpretation, and expansion of tort law, and the effects of unexpected jury verdicts. In establishing claim reserves, the possible increase in future loss settlement costs caused by inflation is considered implicitly, along with the many other factors cited above. Reserves are generally set to provide for the ultimate cost of all claims. With regard to workers' compensation reserves, however, the ultimate cost of long-term disability or pension-type claims is discounted to present value based on interest rates ranging from 3.5% to 4% as permitted by insurance regulatory authorities. The Company, where applicable, uses only such discounted reserves in evaluating the results of its operations, in pricing its products and settling retrospective and reinsured accounts, in evaluating policy terms and experience, and for other general business purposes. Solely to comply with reporting rules mandated by the Securities and Exchange Commission, however, Old Republic has made statistical studies of applicable workers' compensation reserves to obtain estimates of the amounts by which claim and claim adjustment expense reserves, net of reinsurance, have been discounted. These studies have resulted in estimates of such amounts of approximately $115.9, $129.3 and $152.7 million, as of December 31, 1993, 1992, and 1991, respectively. It should be noted, however, that these differences between discounted and non-discounted (terminal) reserves are, fundamentally, of an informational nature, and are not indicative of an effect on operating results for any one or series of years for the above-noted reasons, and for the effect of retrospective rating and similar plans as discussed under "Reserves, Reinsurance, and Retrospective Adjustments" elsewhere herein. The Company believes that its overall reserving practices have been consistently applied over many years, and that its aggregate net reserves have resulted in reasonable approximations of the ultimate net costs of claims incurred. However, no representation is made that ultimate net claim and related costs will not be greater or lower than previously established reserves. The following table shows a reconciliation of consolidated property and liability beginning and ending claim reserves, and the indicated deficiencies or redundancies for the years 1983 to 1993. In reviewing this tabular data, it should be recognized that prior periods' loss payment and development trends may not be repeated in the future due to the large variety of factors influencing the reserving process outlined herein above. With respect to the 1985 and 1986 data in particular, the indicated deficiency pertains largely to adverse claim development for reinsurance assumed business which the Company has de-emphasized since 1986 due to unacceptably high loss ratios. Further, the reserve redundancies or deficiencies shown are not necessarily indicative of the effect on reported results of any one or series of years since retrospective premium and commission adjustments employed in various parts of the Company's business tend to partially or fully offset or negate such effects. (See "Consolidated Underwriting Statistics" above, and "Reserves, Reinsurance, and Retrospective Adjustments" elsewhere herein).
The subject of property and liability insurance claim reserves has been written about and analyzed extensively by a large number of professionals and regulators. Accordingly, the above discussion summary must, of necessity, be regarded as a basic outline of the subject and not as a definitive presentation.
(c) Marketing. Workers' compensation, general liability and commercial automobile insurance underwritten for larger commercial enterprises and public entities is marketed primarily through independent insurance agents and brokers with the assistance of Old Republic's trained sales, underwriting, actuarial, and loss control personnel. The remaining property and liability commercial insurance written by Old Republic is obtained through insurance agents or brokers who are independent contractors and generally represent other insurance companies, by direct sales, and through marketing and underwriting joint ventures.
A portion of Old Republic's consolidated insurance premium volume, particularly in its General and Life Insurance Groups, is produced by the mass marketing of specially designed insurance products through consumer-oriented businesses such as consumer finance companies, banks, savings and loan associations, mortgage bankers, automobile and mobile home dealers, and consumer products dealers. The Corporation has designed ancillary products, such as credit disability, joint life, loan credit guaranty insurance, and property insurance on loan collateral, for sale through the same sources as its other products. Through the combination of these marketing channels, Old Republic is afforded access to large volume markets without having to invest large sums for mailing, advertising, and other acquisition expenses, or for establishing and administering a large sales organization. No single source accounted for over 10% of Old Republic's premium volume in 1993.
A substantial portion of the Company's title insurance business is referred to it by title insurance agents, builders, lending institutions, real estate developers, realtors, and lawyers. Title insurance is sold through 208 Company offices located in 30 states and through agencies and underwritten title companies in the District of Columbia and all states except Iowa and Oregon. The issuing agents are authorized to issue binders and title insurance policies based on their own search and examination, or on the basis of abstracts and opinions of approved attorneys. Policies are also issued through independent abstract companies (not themselves title insurers) pursuant to underwriting agreements. These agreements generally provide that the underwritten company may cause title policies of the Company to be issued, and the latter is responsible under such policies for any payments to the insured. Typically, the agency or underwritten title company deducts the major portion of the title insurance charge to the consumer as its commission and for the services. During 1993, approximately 45% of title insurance premiums and fees was accounted for by policies issued by agents and underwritten title companies.
Existing differences in various parts of the country with respect to the acceptance and use of title insurance in real estate sales and loan transactions have a material effect on title insurance growth and operations in the areas concerned. In the Western states and certain urban areas of the East and Midwest, title insurance is widely accepted, with the result that the potential volume of title insurance premium income is large in relation to the volume of real estate activity in those areas. In some other parts of the country, title insurance is not as generally used, particularly in transactions involving residential real estate. Consequently, in those areas, the growth of title insurance depends not only upon market share of the title insurance business within the industry, but also upon the increased use of title insurance in real estate transactions. The volume of real estate activity is also affected by the availability and cost of financing, population growth, family movements and other factors. Also, the title insurance business is seasonal. During the winter months, new building activity is reduced and, accordingly, the Company does less title insurance business relative to new construction during such months than during the rest of the year. The most important factor, insofar as Old Republic's title business is concerned, however, is the rate of activity in the resale market for residential properties.
Mortgage guaranty insurance is marketed primarily through a direct sales force which calls on savings and loan associations and other lending institutions. No sales commissions or other forms of remuneration are paid to the lending institutions or affiliated persons for the procurement or development of business.
The personal contacts, relationships, and reputations of Old Republic's key executives are a vital element in obtaining and retaining business. Many of the Company's customers produce large amounts of premiums and therefore warrant substantial levels of top executive attention and involvement. In this respect, Old Republic's mode of operation is similar to that of professional reinsurers and commercial insurance brokers, and relies on the marketing, underwriting, and management skills of relatively few key people.
Several types of insurance coverages underwritten by Old Republic, such as credit life and disability, loan credit guaranty, title, and mortgage guaranty insurance, are affected in varying degrees by changes in national economic conditions. During periods of economic recession, operating and claim costs pertaining to such coverages tend to rise disproportionately to revenues and generally result in reduced levels of profitability.
At least one insurance subsidiary of Old Republic is licensed to do business in each of the 50 states, the District of Columbia, Puerto Rico, Virgin Islands, Guam, and each of the Canadian provinces; title insurance operations, however, are licensed to do business in 48 states and the District of Columbia, while mortgage insurance subsidiaries are licensed in 49 states and the District of Columbia. Consolidated direct premium volume distributed among the various geographical regions shown was as follows for the past three years:
(d) Reserves, Reinsurance, and Retrospective Adjustments. Old Republic's insurance subsidiaries establish reserves for future policy benefits, unearned premiums, reported claims, claims incurred but not reported, and claim adjustment expenses, as required in the circumstances. Such reserves are based on regulatory accounting requirements and generally accepted accounting principles. In accordance with insurance industry practices, claim reserves are based on estimates of the amounts that will be paid over a period of time and changes in such estimates are reflected in the financial statements when they occur. See "General Insurance Claim Reserves" herein.
To maintain premium production within its capacity and limit maximum losses and risks for which it might become liable under its policies, Old Republic, as is the practice in the insurance industry, may cede a portion or all of its premiums and liabilities on certain classes of insurance or blocks of business to other insurers and reinsurers. Although the ceding of insurance does not generally discharge an insurer from its direct liability to a policyholder, it is industry practice to establish the reinsured part of risks as the liability of the reinsurer. Old Republic also employs retrospective premium adjustments, contingent commissions, agency profit and risk-sharing arrangements, and joint ventures for parts of its business in order to minimize losses for which it might become liable under its insurance policies, and to afford its clients or producers a degree of participation in the risks and rewards associated with such business. Under retrospective arrangements, Old Republic collects additional premiums if losses are greater than originally anticipated and refunds a portion of original premiums if loss costs are lower. Pursuant to contingent commissions, agency profit and other risk-sharing arrangements, the Company adjusts commissions or premiums retroactively to likewise reflect deviations from originally expected loss costs. The amount of premium, commission, or other retroactive adjustments which may be made is either limited or unlimited depending on the Company's evaluation of risks and related contractual arrangements. To the extent that any reinsurance companies, retrospectively rated risks, or producers might be unable to meet their obligations under existing reinsurance or retrospective insurance and commission agreements, Old Republic would be liable for the defaulted amounts. In these regards, however, the Company generally protects itself by withholding funds, or by otherwise collateralizing reinsurance obligations through irrevocable letters of credit, cash, and securities.
Old Republic's reinsurance practices with respect to portions of its business also result from its desire to bring its sponsoring organizations and clients into some degree of joint venture relationship. The Corporation may, in exchange for a ceding commission, reinsure up to 100% of the underwriting risk, and the premium applicable to such risk, to insurers owned by or affiliated with lending institutions, sponsors whose customers are insured by Old Republic, or individual clients who have formed "captive" insurance companies. The ceding commissions received compensate Old Republic for performing the direct insurer's functions of underwriting, actuarial, claim settlement, loss control, legal, reinsurance, and administrative services to comply with local and federal regulations, and for providing appropriate risk management services.
Remaining portions of Old Republic's business are reinsured with independent insurance or reinsurance companies under various quota share, and excess of loss agreements.
Reinsurance protection on property and liability operations generally limits the net loss on any one risk to a maximum of (in whole dollars): fire and other physical perils-$20,000; accident and health-$15,000; workers' compensation-$1,000,000; other liability coverages-$600,000; and loan credit guaranty-$200,000. Title insurance risk assumptions, based on the title insurance subsidiaries' financial resources, are limited to a maximum of $15,000,000 as to any one policy. Substantially all the mortgage guaranty insurance business is retained, with the exposure on any one risk currently averaging less than $20,000. The maximum amount of ordinary life insurance retained on any one life by the Life Insurance Group (without reinsurance) is $250,000.
(e) Competition. The insurance business is highly competitive and Old Republic competes with many stock and mutual insurance companies. Many of these competitors offer more insurance coverages and have substantially greater financial resources than the Corporation. The rates charged for many of the insurance coverages in which the Corporation specializes, such as credit life and disability insurance, workers' compensation insurance, other property and liability insurance, and title insurance, are primarily regulated by the states and are also subject to extensive competition among major insurance organizations. The basic methods of competition available to Old Republic, aside from rates, are service to customers, expertise in tailoring insurance programs to the specific needs of its clients, efficiency and flexibility of operations, personal involvement by its key executives, and, as to title insurance, accuracy and timely delivery of evidences of title issued. For certain types of coverages, including loan credit guaranty and mortgage guaranty insurance, the Company also competes in varying degrees with the Federal Housing Administration ("FHA") and the Veterans Administration ("VA"). In these regards, the Corporation's insurance subsidiaries compete with the FHA and VA by offering different coverages and by establishing different requirements relative to such factors as interest rates, closing costs, and loan processing charges. The Corporation believes its experience and expertise have enabled it to develop a variety of specialized insurance programs for its customers and to secure state insurance departments' approval of these programs.
(f) Government Regulation. In common with all insurance companies, the Corporation's insurance subsidiaries are subject to the regulation and supervision of the jurisdictions in which they do business. The method of such regulation varies, but, generally, regulation has been delegated to state insurance commissioners who are granted broad administrative powers relating to: the licensing of insurers and their agents; the nature of and limitations on investments; approval of policy forms; reserve requirements; and trade practices. In addition to these types of regulation, many classes of insurance, including most of the Corporation's insurance coverages, are subject to rate regulations which require that rates be reasonable, adequate, and not unfairly discriminatory.
The National Association of Insurance Commissioners has promulgated a model law providing stringent regulation of credit life and disability insurance which has been adopted in various forms by most states. An important interpretation of the model law stipulates that a loss ratio below 60% would be construed as producing an excessive premium rate, thereby indirectly defining the maximum rate that can be charged by an insurer. Some states now require a substantially higher loss ratio on these coverages. Although one of the general effects of the model law has been to reduce rates significantly, in some states where the rates were excessively reduced, Old Republic has been able in some cases to obtain higher rates by demonstrating that actual loss ratios incurred have been in excess of a permissible loss ratio required by regulatory authorities as a condition for obtaining rate increases.
Credit life and disability insurance practices are further regulated by the federal "Truth-in-Lending Law" which requires, among other things, that a borrower be specifically informed of the existence and cost of credit life and disability insurance, execute a written acknowledgement of his understanding of such insurance, and give a written order for the insurance as a condition of his incurring any charge for the coverage.
There have been various proposals from time to time with respect to additional regulation of credit life and disability insurance which could have an adverse effect on the consumer credit insurance business. The financial institutions whose customers are insured by Old Republic are also regulated by federal and state authorities whose regulations have a direct effect on certain forms of credit life and disability insurance.
The Federal National Mortgage Association ("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC") have various qualifying requirements for private mortgage guaranty insurers which write mortgage insurance on loans acquired by the FNMA and FHLMC from mortgage lenders. These requirements include a basic standard calling for the maintenance of a ratio of aggregate insured risk to policyholders' surplus (defined as total statutory capital and surplus plus statutory contingency reserves) of not more than 25 to 1. Other qualifying requirements are designed to insure the financial stability of a private mortgage insurance company by limiting the geographic concentration of insurance risks, by limiting risks on nonresidential real estate insurance to 10% of policyholders' surplus, by maintaining 85% of total admitted assets in marketable securities and other highly liquid investments, and by maintaining a minimum policyholders' surplus of $5 million.
Most of the Company's savings and loan association customers for mortgage guaranty insurance are governed by the regulations of the Federal Home Loan Bank Board. A regulation of that Board prohibits savings and loan associations from insuring any loan with a mortgage insurance company if certain relationships exist between such mortgage insurance company and the savings and loan association. Generally, a savings and loan association may not obtain insurance from any mortgage insurance company if (1) any commission, fee or other compensation is paid to the savings and loan association or any of its officers, directors, employees or affiliates, (2) a savings account is maintained by the mortgage insurance company with such savings and loan association, (3) any officer or employee of the mortgage insurance company or its parent company is a director, officer or controlling person of the savings and loan association, or (4) either (a) the association or any director, officer, controlling person or affiliate holds equity securities of the mortgage insurance company or any parent company thereof having a cost in excess of $50,000 or representing more than one percent of any class of equity securities of the company, if its assets are less than $50 million, or one-half percent, if the assets equal or exceed $50 million, or (b) the association and all of its directors, officers, controlling persons or affiliates in the aggregate own equity securities of the mortgage insurance company
having a cost in excess of $100,000, or two percent of a company the assets of which are less than $50 million, or one percent, if the assets equal or exceed $50 million.
The majority of states have also enacted insurance holding company laws which require registration and periodic reporting by insurance companies controlled by other corporations licensed to transact business within their respective jurisdictions. Old Republic's insurance subsidiaries are subject to such legislation and are registered as controlled insurers in those jurisdictions in which such registration is required. Such legislation varies from state to state but typically requires periodic disclosure concerning the corporation which controls the registered insurers, or ultimate holding company, and all subsidiaries of the ultimate holding company, and prior approval of certain intercorporate transfers of assets (including payments of dividends in excess of specified amounts by the insurance subsidiary) within the holding company system. Each state has established minimum capital and surplus requirements to conduct an insurance business. All of the Company's subsidiaries meet or exceed these requirements, which vary from state to state.
(g) Employees. As of December 31, 1993, Old Republic employed approximately 6,100 persons on a full time basis. Eligible full time employees participate in various pension plans which provide annuity benefits payable upon retirement. Eligible employees are also covered by hospitalization and major medical insurance, group life insurance, and various profit sharing and deferred compensation plans. The Company considers its employee relations to be good.
Item 2


Item 2 - Properties
The principal executive offices of the Company are located in the Old Republic Building in Chicago, Illinois. This Company owned building contains 151,000 square feet of floor space of which approximately 50% is occupied by Old Republic, and the remainder is leased to others. In addition to the Company-owned principal executive offices, a subsidiary of the Title Insurance Group partially occupies its headquarters building. This building contains 110,000 square feet of floor space of which approximately 62% is occupied by the Old Republic National Title Insurance Company. The remainder of the building is leased to others. Nine smaller buildings are owned by Old Republic and its subsidiaries in various parts of the country and are primarily used for its business. The carrying value of all buildings and related land at December 31, 1993 was approximately $12.6 million, and mortgages thereagainst aggregated $.4 million as of the same date.
Certain other operations of the Company and its subsidiaries are directed from leased premises. See Note 5(b) of the Notes to Consolidated Financial Statements for a summary of all material lease obligations.
Item 3
Item 3 - Legal Proceedings
There are no material legal proceedings against the Company other than those arising in the normal course of business and which generally pertain to claim matters related to insurance policies and contracts issued by the Corporation's insurance subsidiaries.
Item 4
Item 4 - Submission of Matters to a Vote of Security Holders
None
Item 4(a)-Executive Officers of the Registrant
Name AgePosition
Paul D. Adams 48 Senior Vice President, Chief Financial Officer since 1990 and Treasurer since 1993. Executive Vice President, Finance and Secretary from 1982 to 1989 of Great West Casualty Company, a wholly-owned subsidiary.
Anthony F. Colao 66 Senior Vice President, and Director since 1987.
Spencer LeRoy, III 47 Senior Vice President, General Counsel, and Secretary since 1992.
William F. Schumann 54 Senior Vice President since 1989. President since 1974 of Old Republic Insured Credit Services, Inc., a wholly-owned subsidiary.
William A. Simpson 52 Senior Vice President/Mortgage Guaranty, and Director since 1980. President since 1972 of Republic Mortgage Insurance Company, a wholly-owned subsidiary.
A. C. Zucaro 54 Chief Executive Officer, President, Director and Chairman of the Board since 1990, 1981, 1976 and 1993, respectively.
The term of office of each officer of the Company expires on the date of the annual meeting of the board of directors, which is generally held in May of each year. There is no family relationship between any of the executive officers named above. Each of these named officers, except Mr. LeRoy, has been employed in executive capacities with the Company and/or its subsidiaries for the past five years.
PART II
Item 5
Item 5 - Market for the Registrant's Common Stock and Related Security Holder Matters
The Company's common stock is traded on the New York Stock Exchange under the symbol "ORI". The high and low closing prices as reported on the New York Stock Exchange, and cash dividends declared for each quarterly period during the past two years were as follows:
Closing Price Cash High Low Dividends
1st quarter 1992. . . . . $20.88 $17.50 $ .093 2nd quarter 1992. . . . . 22.38 19.00 .100 3rd quarter 1992. . . . . 24.38 19.63 .100 4th quarter 1992. . . . . $26.50 $23.50 $ .100
1st quarter 1993. . . . . $27.00 $24.50 $ .100 2nd quarter 1993. . . . . 26.13 21.63 .110 3rd quarter 1993. . . . . 27.38 23.00 .110 4th quarter 1993. . . . . $25.50 $21.88 $ .110
As of January 31, 1994, there were 3,973 registered holders of the Company's Common Stock. See Notes 4(b) and 4(c) of the Notes to Consolidated Financial Statements for a description of certain regulatory restrictions on the payment of dividends by Old Republic's insurance subsidiaries and certain restrictions under the terms of Old Republic's loan agreements. Closing prices have been restated, as necessary, to reflect all stock dividends and splits declared through December 31, 1993.
Item 7

Item 7 - Management Analysis of Financial Position and Results of Operations ($ in Millions, Except Share Data)
OVERVIEW
This analysis pertains to the consolidated accounts of Old Republic International Corporation. The Company conducts its business through four major segments, namely its General (property and liability coverages), Title, Mortgage Guaranty, and Life insurance groups.
CHANGES IN ACCOUNTING POLICIES
In 1993, the Company adopted several changes in accounting policies to comply with Financial Accounting Standards Board (FASB) pronouncements that have been mandated. The adoption of the asset and liability method for calculating deferred income taxes and the recognition of present value liabilities pertaining to post-retirement health benefits under retirement plans maintained by a few Old Republic subsidiaries increased net income by $8.6 or 15 cents per share (14 cents fully diluted) in the first quarter of 1993. Accounting for reinsurance ceded transactions affected the Company's balance sheet but not the consolidated income statement; assets and liabilities at December 31, 1993, were increased by corresponding amounts of approximately $1,524.2 due to the reclassification change for these transactions. Finally, the Company reexamined the classification of its invested assets which led to reporting such assets as either "held to maturity" or "available for sale"; the effect of these classification changes was to increase assets and the liability for deferred taxes by $25.2 and $8.7, respectively, and common shareholders' equity for the net unrealized appreciation of securities newly reclassified at fair value by $16.4 or 32 cents per common share as of December 31, 1993. See Note 1 of the Notes to Consolidated Financial Statements for further details relating to these changes. Prior years' financial statements have not been restated nor reclassified to reflect these changes as permitted by the pertinent FASB pronouncements.
FINANCIAL POSITION
Exclusive of the classification changes noted above, Old Republic's financial position at December 31, 1993 reflected increases in assets of 9.8%, liabilities of 8.6%, and common shareholders' equity of 13.5% when compared to the immediately preceding year-end. At December 31, 1993 and 1992, cash and invested assets represented 81.2% and 80.5% of consolidated assets, respectively. 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 will vary and respond to the dynamics of these factors and may, as a result, increase or decrease from current levels. During 1993 and 1992, 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". During 1993, however, Old Republic increased its commitment to common stock investments which reflected an increase of 50% vis-a-vis the related invested balance at year-end 1992. As of December 31, 1993, 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. 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. The insurance subsidiaries' ability to pay cash dividends to the parent company is generally restricted by law or subject to approval of the insurance regulatory authorities of the states in which they are domiciled. Additionally, the terms of guarantees by the Company of bank loans to the trustee of the Company's Employees Savings and Stock Ownership Plan require the Company to maintain a minimum consolidated tangible net worth and restrict the amount of debt the Company may incur, both of which covenants are being met.
In August 1992, the Company issued $110 of 5 3/4% convertible debentures maturing in 2002. Net proceeds from this offering were used to redeem approximately $50 of commercial paper debt, with the remainder allocated to the capital of several insurance subsidiaries. Convertible debt of approximately $41.3 outstanding at December 31, 1991 was converted into 2,676,284 shares of Old Republic common stock during 1992. Old Republic's capitalization of $1,617.7 at December 31, 1993 consisted of debt and debt equivalents of $282.7, redeemable convertible preferred stock of $16.6 (excluding $15.1 of such stock classified as a debt equivalent), conver- tible preferred stock of $3.9, cumulative preferred stock of $57.5, and common shareholders' equity of $1,256.9. The rise in the common shareholders' equity account during the past three years reflects primarily the retention of earnings in excess of dividends declared on outstanding preferred and common shares, the conversion of debt and preferred stock to common stock, and the previously noted net unrealized appreciation of securities.
RESULTS OF OPERATIONS
Revenues:
Net premiums and fees earned increased by 12%, 16%, and 10% in 1993, 1992 and 1991, respectively. For each of the past three years, property and liability insurance premium increases were due to varying levels of growth in certain parts of the Company's business, but principally among liability coverages. During these years, the Corporation has cancelled periodically certain property and liability insurance business not meeting its underwriting expectations. Greater real estate financing activity during the three most recent calendar years led to higher revenues in the title segment. For the past three years, mortgage guaranty premiums also increased due to a rise in the amount of renewal and new business, and greater market penetration. Life and disability premium volume has generally trended down during the years 1992 and 1991 as the Corporation has continued to de-emphasize this business until greater returns are possible. An increase in 1993 of life and disability premium is attributed to the introduction of more favorably priced term life insurance products that received greater market acceptance.
Net investment income was relatively flat in 1993 and grew by 1% and 6% in 1992 and 1991, respectively. For each of the past three years, the growth in this revenue source was bolstered by positive consolidated operating cash flows and a concentration of investable assets in interest-bearing, fixed maturity securities. The average annual yield on investments was 6.4%, 7.3%, and 8.1% for the years ended December 31, 1993, 1992 and 1991, respectively; the downward trend reflects principally the declining current yields in the securities markets.
While the Company's investment policies have not been designed to maximize capital gains, during 1992 such gains were much higher than those realized in 1993 and 1991. Dispositions of securities have 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 Company's ongoing process of continually monitoring its investments with a view toward maximizing the quality ratings and diversification of its portfolio. For the year 1993, approximately 58% of total dispositions represented maturities and early calls of existing holdings; for the year 1992 these amounted to approximately 37% of all securities sales and dispositions.
Expenses:
Consolidated benefit, claim, and related settlement costs, as a percentage of net premiums and fees earned, were approximately 56% in 1993, 58% in 1992 and 62% in 1991. This consolidated ratio was affected principally by a slightly improving claim ratio for property and liability insurance coverages. 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. Policyholders' dividends incurred in the Corporation's property and liability lines for each year reflect changes in the loss ratio for experience-rated policies. The title insurance loss ratio was affected by higher than normal claims provisions in both 1993 and 1992 which added approximately 3.0% and 3.8%, respectively, to this group's loss ratio. The loss ratio declined or remained relatively stable in the mortgage guaranty insurance line due to a reduction of frequency of claim occurrences.
The ratio of consolidated underwriting, acquisition, and insurance expenses to net premiums and fees earned was approximately 45% in 1993, 46% in 1992 and 43% in 1991. Variations in these ratios reflect a continually changing mix of coverages sold and attendant costs of producing business. In years during which title insurance premiums and fees grow significantly, as in 1993 and 1992, in particular, the consolidated expense ratio tends to rise as production costs for this line are higher than those for most other types of insurance.
Income from Operations:
During 1992 the Company's Title Insurance Group established greater than normal loss provisions of $15.0 as additional funding for various title escrow claims in process of disposition. In 1992, the Company's life insurance subsidiaries recorded previously unrecognized tax recoveries of $1.1 and related interest credits of approximately $12.4 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 $12.4 and claim costs by $15.0, and to record net current and deferred income tax credits of $1.1. Above normal additions to Title Insurance Group claim reserves during 1993 affected adversely pre-tax income by approximately $13.3.
Income before taxes decreased by 3% in 1993 and increased by 43% in 1992 and 32% in 1991. General insurance results have trended up slightly during the past five years and have continued as the major contributor to consolidated earnings, principally as a result of growing investment income. Title insurance operating results have improved over the past three years due to the previously discussed increase in revenues. The mortgage guaranty segment reflected significantly improved results due to increased revenues and favorable claims experience in each of the past three years, while life and disability operations have reflected a secular downward trend in the past three years. Consolidated pre-tax income for 1993 and 1992 in particular was affected positively by greater than normal realization of investment gains.
The effective consolidated income tax rates were 32% in 1993, 30% in 1992 and 26% in 1991. The rates for each year reflect primarily the varying proportions of pre-tax operating income derived from tax-exempt investment income, on the one hand, and the combination of fully taxable investment income, realized investment gains, and underwriting and service income, on the other hand. In August 1993, the corporate federal income tax rate was increased from 34% to 35% retroactive to January 1, 1993. In recent years the Corporation has emphasized purchases of taxable investment securities. Amortization of fresh start benefits stemming from the Tax Reform Act of 1986 (the "TRA") reduced income taxes by $1.9 in 1992 and $3.6 in 1991.
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. However, 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
Reference is here made to "Financial Information Relating to Segments of Business" appearing elsewhere herein.
Historical data pertaining to the operating results, liquidity, and other financial matters applicable to an insurance enterprise such as the 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 and free markets affecting inflation rates and general economic conditions are some of the factors which have a bearing on year-to-year comparisons and future operating results.
Item 8

Item 8 - Financial Statements Listed below are the financial statements included herein: OLD REPUBLIC INTERNATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets Consolidated Statements of Income Consolidated Statements of Preferred Stock and Common Shareholders' Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Report of Independent Accountants
Proceeds from sales of fixed maturity securities-available for sale were $188.3 and fixed maturity securities-held to maturity were $486.8 during 1993 while proceeds from sales of fixed maturity securities were $1,473.0 in 1992. Gross gains of $19.5 and gross losses of $4.1 were realized on sales of fixed maturity securities-available for sale during 1993, and gross gains of $68.8 and gross losses of $7.8 were realized on the sales of fixed maturity securities during 1992.
Investment income is reported net of allocated expenses and includes appropriate adjustments for amortization of premium and accretion of discount on bonds and notes acquired at other than par value. Dividends on stock are credited to income on the ex-dividend date. Realized investment gains and losses are reflected in the income statement and are determined on the basis of amortized value at date of sale for bonds and notes, and cost in regard to stocks; such bases apply to the specific securities sold. Unrealized investment gains and losses, net of any deferred income taxes, are recorded directly in a separate account of shareholders' equity. Net unrealized appreciation of securities at December 31, 1993 included gross unrealized gains and losses of $41.6 and $3.6, respectively.
At December 31, 1993, the Corporation and its subsidiaries had non-income producing investments aggregating $1.5.
(d) Revenue Recognition-Pursuant to generally accepted accounting principles applicable to the insurance industry, benefits, claims, and expenses are associated with the related revenues by means of the provision for policy benefits, the deferral and subsequent amortization of acquisition costs, and the recognition of incurred benefits, claims and operating expenses.
General insurance (property and liability) and level-term credit life insurance premiums are reflected in income on a pro-rata basis. Earned but unbilled premiums are generally taken into income on the billing date, and adjustments for retrospective premiums, commissions and similar charges are accrued on the basis of periodic evaluations of current underwriting experience and contractual obligations. Title insurance premiums are recognized as income upon the substantial completion of the policy issuance process. Title abstract, escrow, service, and other fees are taken into income at the time that the services are performed. First year and renewal mortgage guaranty premiums are recognized as income on a straight-line basis except that a portion of first year premiums received for certain high risk policies is deferred and reported as earned over the estimated policy life, including renewal periods. Single premiums for mortgage guaranty policies covering more than one year are earned on an accelerated basis over the policy term. Ordinary life and annuity premiums are recognized as revenue when due. Decreasing term credit life and credit disability/accident & health insurance premiums are generally earned on a sum-of-the-years-digits or similar method.
(e) Deferred Policy Acquisition Costs-The Corporation's insurance subsidiaries, other than title companies, defer
certain costs which vary with and are primarily related to the production of business. Deferred costs consist principally of commissions, premium taxes, marketing, and policy issuance expenses. With respect to most coverages, defer- red acquisition costs are amortized on the same basis as the related premiums are earned or, alternatively, over the periods during which premiums will be paid or underwriting and claim services performed. The following table summarizes deferred policy acquisition costs and related data for the years shown:
Years Ended December 31,
(f) Future Policy Benefits/Unearned Premiums-See note 1(g) for discussion of FAS No. 113 "Accounting and Reporting for Reinsurance of Short Duration and Long-Duration Contracts". General insurance and level term credit life insurance policy liabilities represent unearned premium reserves developed by application of monthly pro-rata factors to premiums in force. Disability/accident & health and decreasing term credit life insurance policy liabilities are calculated primarily on a sum-of-the-years-digits method. Mortgage guaranty unearned premium reserves are calculated primarily on a pro-- rata basis. Ordinary life policy liabilities are determined on a level premium method and take into account mortality and withdrawal rates based principally on anticipated company experience; assumed interest rates range from 3.0% to 6.0%. With respect to annuity policies, the liabilities represent the surrender value of such policies during deferral periods, without adjustment for surrender charges; such values are deemed appropriate to provide for ultimate benefit reserves in the event policyholders exercise an annuity benefit option at a later date.
At December 31, 1993 and 1992, the Life Insurance Group had $4,286.7 and $3,515.5, respectively, of net life insurance in force. Future policy liabilities and unearned premiums, consisted of the following:
At December 31, 1992, future policy benefit liabilities and unearned premiums are included net of reinsurance ceded to other companies of $121.5. The Company issues, directly or as a reinsurer, certain insurance policies generally categorized as financial guarantees. The major types of guarantees pertain to (a) state, municipal and other general or special revenue bonds, (b) variable interest rate guarantees, and (c) insurance of the future residual value of fixed assets. The types of risks involved include failure by the bond issuer to make timely payment of principal and interest, changes in interest rates, and changes in the future value of fixed assets. The degree of risk pertaining to these insurance products is largely dependent on the effects of general economic cycles and changes in the credit worthiness of issuers whose obligations have been guaranteed. During the past three years, new commitments have been limited to those identified at (a) immediately above. Premiums received for financial guarantee policies are generally earned over the terms of the contract (which may range between 5 and 30 years) or on the basis of current exposure relative to maximum exposure in force; with respect to residual value insurance, that portion of the premium in excess of certain initial underwriting costs is deferred and taken into income when all events leading to the determination of exposure, if any, have occurred. Since losses on financial guarantee insurance products cannot be predicted reliably, the Company's unearned premium reserves serve as the primary income recognition and loss reserving mechanism. When losses become known and determinable, they are paid or placed in reserve and the remaining directly-related unearned premiums are taken into income.
No assurance can be given that unearned premiums will be greater or less than ultimate incurred losses on these policies.
The following table reflects certain data pertaining to net insurance in force for the Company's financial guarantee business at the dates shown:
With respect to mortgage guaranty insurance (net insurance in force of $24,026.1 and $16,647.0, at December 31, 1993 and 1992, respectively) the Company's reserving policies are set forth below in Note l(g).
(g) Losses, Claims and Settlement Expenses-Reserves are provided for the ultimate expected cost of settling unpaid losses and claims reported at each balance sheet date. Losses and claims incurred but not reported, as well as expenses required to settle losses and claims are established on the basis of various criteria, including historical cost experience and anticipated costs of servicing reinsured and other risks. Long-term disability-type workers' compen- sation reserves, however, are discounted to present value based on interest rates ranging from 3.5% to 4% as permitted by regulatory authorities. All reserves are necessarily based on estimates which are periodically reviewed and evaluated in the light of emerging claim experience and existing circumstances. The resulting changes in estimates are recorded in operations of the periods during which they are made. Consistent with industry practice, total loss and claim reserves are stated net of reinsurance ceded to other companies in the amount of $1,244.1 at December 31, 1992. Effective January 1, 1993 the Company adopted Financial Accounting Standard (FAS) No. 113 "Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts" which eliminates the reporting of assets and liabilities relating to reinsured contracts net of reinsurance ceded balances. Accordingly, reinsured losses and unearned premiums are to be reported as assets. At December 31, 1993, assets and liabilities were, as a result, increased by corresponding amounts of approximately $1.5 billion. FAS No. 113 did not have any effect on the Company's results of operations.
(h) Income Taxes-The Corporation and most of its subsidiaries file a consolidated tax return and provide for income taxes payable currently. The tax benefits of net operating losses are recognized in the periods during which they become recoverable. Deferred income taxes included in the accompanying consolidated financial statements pursuant to generally accepted accounting principles will not necessarily become payable/recoverable in the future. Effective January 1, 1993 the Company adopted Financial Accounting Standard (FAS) No. 109 "Accounting for Income Taxes." FAS No. 109 requires a change to the asset and liability method of calculating deferred income taxes. The cumulative effect of this change resulted in an increase in net income of $13.3, or $.23 per share ($.22 fully diluted) in 1993. This method requires the establishment of a deferred tax, calculated at currently effective tax rates, for the cumulative temporary differences between financial statement and tax bases of assets and liabilities. Prior to January 1, 1993 deferred income taxes applicable to income and expense items reported in the consolidated financial statements in different periods than for tax purposes were established.
The provision for combined current and deferred income taxes reflected in the consolidated statements of income does not bear the usual relationship to operating income before taxes as the result of permanent and other differences between pre-tax income and taxable income determined under existing tax regulations. The more significant differences, their effect on the statutory income tax rate, and the resulting effective income tax rates are summarized below:
A summary of deferred income taxes applicable to the following years:
Years Ended December 31, 1992 1991
Deferred policy acquisition costs $ 5.7 $ 1.2 Future policy benefits 3.5 (1.0) Loss and unearned premium reserve discounting and amortization (4.9) (16.4) Fresh start amortization of discounted loss reserves (1.9) (3.6) Contingency reserves 17.2 5.0 Other items - net .9 (.3) Total $ 20.5 $ (15.1)
The tax effects of temporary differences that give rise to significant portions of the Company's net deferred tax recoverable are as follows at the dates shown:
December 31, 1993 January 1, 1993 Deferred Tax Assets: Future policy benefits $ 1.7 $ 1.5 Losses, claims, and settlement expenses 182.2 165.4 Unearned premium reserves 6.2 3.4 Other 8.7 8.6 Total gross deferred tax assets 199.0 178.9 Less-valuation allowance 3.9 4.1 Net deferred tax assets 195.0 174.8 Deferred Tax Liabilities: Deferred policy acquisition costs 34.2 27.8 Mortgage Guaranty insurers contingency reserves 43.2 25.1 Fixed maturity securities adjusted to costs 4.8 3.4 Unrealized investment gains 10.2 2.6 Title plants and records 3.4 3.3 Other 15.7 18.8 Total deferred tax liability $111.9 81.3 Net deferred tax asset $ 83.2 $ 93.4
Pursuant to special provisions of the Internal Revenue Code pertaining to mortgage guaranty insurers, a contingency reserve (established in accordance with insurance regulations designed to protect policyholders against extraordinary volumes of claims) is deductible from gross income. The tax benefits obtained from such deductions must, however, be invested in a special type of non-interest bearing U.S. Government Tax and Loss Bond. For Federal income tax purposes, the amounts deducted for the contingency reserve are taken into gross statutory taxable income (a) when the contingency reserve is permitted to be charged for losses under state law or regulation, (b) in the event operating losses are incurred, or (c) in any event upon the expiration of ten years.
Life Insurance companies domiciled in the United States and qualifying as life insurers for tax purposes are taxed under special provisions of the Internal Revenue Code. As a result of legislation, 1983 and prior years' tax deferred earnings (cumulatively $20.7 at December 31, 1993) credited to the former memorandum "policyholders' surplus account" will not be taxed unless they are subsequently distributed to shareholders. The Company does not presently anticipate any distribution or payment of taxes on such earnings in the future.
As a result of regular examinations of the tax returns for the Corporation and its subsidiaries, the Internal Revenue Service ("IRS") has proposed certain adjustments for additional taxes applicable to the years 1982 to 1990. The proposed adjustments pertain to the timing of certain deductions, the IRS's contention that contractually obligated premium refunds should be treated as dividends, deductions for certain loss and related reserves, a reinsurance transaction, and several other issues not involving material amounts. The Company and its tax counsel believe that substantially all of the proposed material adjustments are without merit, that the Company will be successful in vigorously defending its positions, and that the ultimate adjustments, if any, will not significantly affect its financial condition or results of operations. During 1993 and 1992, certain of the proposed adjustments were finally settled for immaterial amounts. In 1992, the Company's life insurance subsidiaries recorded previously unrecognized tax recoveries of $1.1 and related interest credits of approximately $12.4 stemming from resolution of various long-standing Internal Revenue Service disputes applicable to taxable years 1969 to 1981.
(i) Property and Equipment-Property and equipment is generally depreciated or amortized over the estimated useful lives of the assets, (2 to 45 years), substantially by the straight-line method. Expenditures for maintenance and repairs are charged to income as incurred, and expenditures for major renewals and additions are capitalized.
(j) Title Plants and Records-Title plants and records are carried at original cost or appraised value at date of purchase. Such values represent the cost of producing or acquiring interests in title records and indexes and the appraised value of purchased subsidiaries' title records and indexes at dates of acquisition. The cost of maintaining, updating, and operating title records is charged to income as incurred. Title records and indexes are not being amortized since they have an indefinite life and do not diminish in value.
(k) Goodwill-The costs of certain purchased subsidiaries in excess of related book values (goodwill) at date of acquisition are being amortized against operations principally over 40 years using the straight-line method. Amortization of goodwill amounted to $3.2 in 1993, $3.0 in 1992, and $2.9 in 1991.
(l) Employee Benefit Plans- The Corporation has several pension plans covering approximately half of its employees. The plans are defined benefit plans in which the benefits are based primarily on years of service and employee com- pensation near retirement. It is the Corporation's policy to fund the plans' costs as they accrue. Plan assets are comprised principally of bonds, common stocks and short-term investments. The components of annual net periodic pension cost (credit) for the plans consisted of the following:
Years Ended December 31, 1993 1992 1991
Service cost $ 3.0 $ 2.9 $ 2.5 Interest cost 6.7 6.2 5.7 Return on assets (8.0) (10.5) (9.2) Net amortization and deferral (1.7) 1.4 1.0 Net cost (credit) $ - $ - $ .1
The reconciliation of the funded status of the plans is as follows:
The projected benefit obligations for the plans were determined using the following at: December 31, 1993 1992 Settlement discount rates 7.5 - 8.0% 7.5 - 8.75% Rates of compensation increase 4.0 - 5.5% 5.0 - 6.0% Long-term rates of return on assets 8.0 - 9.0% 8.0 - 9.0%
The Corporation has a number of profit sharing and other incentive compensation programs for the benefit of a substantial number of its employees. The costs related to such programs are summarized below:
(p) Concentration of Credit Risk-Excluding U.S. government bonds and notes, the Company is not exposed to any significant credit concentration risk.
(q) Statement Presentation-Amounts shown in the consolidated financial statements and applicable notes are stated (except as otherwise indicated and as to share data) in millions, which amounts may not add to totals shown due to rounding. Necessary reclassifications are made in prior periods' financial statements whenever appropriate to conform to current presentation.
Note 2-Investments - Bonds and other investments carried at $160.7 as of December 31, 1993 were on deposit with governmental authorities by the Corporation's insurance subsidiaries to comply with insurance laws.
Note 3-Debt and Debt Equivalents-Consolidated debt of Old Republic and its subsidiaries is summarized below:
(b) Cash Dividend Restrictions-The payment of cash dividends by the Corporation is principally dependent upon the amount of its insurance subsidiaries' statutory policyholders' surplus available for dividend distribution. The insurance subsidiaries' ability to pay cash dividends to the Corporation is in turn generally restricted by law or subject to approval of the insurance regulatory authorities of the states in which they are domiciled. These authorities recognize only statutory accounting practices for determining financial position, results of operations, and the ability of an insurer to pay dividends to its shareholders. Based on 1993 data, the maximum amount of dividends payable to the Corporation by its insurance and other wholly-owned subsidiaries during 1994 without the prior approval of their respective regulatory authorities is approximately $192.4. However, management does not expect to distribute all such dividends since reinvested earnings are the Corporation's major source of capital to promote its growth and support its obligations to policyholders. (c) Debt Restrictions-Under the most restrictive covenants, the terms of Old Republic's guaranties relative to loan agreements described in Note 3(a) provide that while loans under such agreements are outstanding, Old Republic will maintain a minimum consolidated tangible net worth (excluding goodwill and net unrealized capital gains or losses, but including title plants and records) of at least $400.0. Such agreements also, among other things, restrict Old Republic from permitting "Debt" to exceed 25% of its consolidated tangible net worth (as adjusted for goodwill and net unrealized capital gains or losses on equity securities) without approval of the lenders.
(d) Stock Option Plans-The Corporation has had non-qualified, stock option plans (the 1979, 1985 and 1992 plans) for its key employees and those of its eligible subsidiaries since 1979. The plans provide for the issuance of options for up to 5% of the Old Republic common stock issued and outstanding at any one time. The term of each option is 10 years from the date of grant, although some options have a 15 year term. Under ordinary circumstances, options may be exercised to the extent of 10% of the number of shares covered thereby on and after the date of grant and cumulatively to the extent of an additional 10% on and after each of the first through ninth anniversaries of the date of grant. The Corporation may extend 15 year loans at a prevailing market rate of interest for a portion of the exercise price. Amendments to the plans also enable optionees to, alternatively, exercise their options into Series "G" or Series "G-2" Convertible Preferred Stock. The exercise of options into such Series "G" or Series "G-2" Convertible Preferred stock reduces by 5% the number of equivalent common shares which would have otherwise been obtained from the exercise of options. Under the 1979 plan, the employee's right to exercise his options is accelerated if the Corporation is dissolved or liquidated, merges or consolidates with another company and the Corporation is not the surviving corporation, or more than 50% of the members of the Board of Directors of the Corporation change in any one year unless one or more of the new directors was nominated by the Board of Directors of the Corporation.
Under the 1985 and 1992 plans, in the event the market price of Old Republic common stock reaches a preestablished value ("vesting acceleration price"), optionees may exercise their options to the extent of 10% of the number of shares covered by the option for each year that the optionee has been employed by the Corporation or its subsidiaries.
Changes in stock options and related information are reflected in the following table (See Note 4(a)(1) above).
Option prices represent the per share market price on the date of grant. No charge is made to earnings in connection with the granting or exercise of nonqualified stock options. In conjunction with the purchase or merger of various companies, the Corporation has assumed the stock option obligations under various qualified and nonqualified stock option plans previously adopted by such companies. These plans were terminated as of the merger dates, and existing options at that date became exercisable into Old Republic common shares at their original price adjusted for the appropriate exchange ratios pertaining to each merger. At December 31, 1993, options for 23,822 shares were outstanding and 21,960 shares were exercisable under all of these plans at prices ranging between $7.72 and $10.00 per share. Options for 24,568; 74,440; and 42,452 were exercised for a total consideration of approximately $0.1, $0.5 and $0.5 during 1993, 1992 and 1991, respectively.
(e) Common Stock-There were 100,000,000 shares of common stock authorized at December 31, 1993. At the same date, there were 20,000,000 shares of Class "B" common stock authorized but none were issued or outstanding. Class "B" common shares have the same rights as common shares except for being entitled to 1/10th of a vote per share.
(f) Undistributed Earnings-The equity of the Corporation in the undistributed earnings, determined in accordance with generally accepted accounting principles, and in the net unrealized investment gains (losses) of its respective subsidiaries at December 31, 1993 amounted to $921.5 and $23.7, respectively. Common stock dividends declared during 1993, 1992 and 1991, to the Corporation by its subsidiaries amounted to $53.9, $50.6, and $38.6, respectively.
(g) Treasury Stock-A total of 5,540,360 common shares issued and outstanding are held by consolidated affiliates. See "Related Party Transactions" herein.
(h) Statutory Data-The shareholders' equity and net income, determined in accordance with statutory accounting practices, of the Corporation's insurance subsidiaries was as follows at the dates and for the periods shown:
Reinsurance protection for General Insurance operations generally limits the net loss on any one risk as follows (in thousands): fire and other physical perils-$20; accident and health-$15; workers' compensation-$1,000 and other liability-$600; loan credit guaranty-$200. Title insurance risk assumptions, based on the title insurance subsidiary's financial resources, are currently limited to $15,000 as to any one policy. A substantial portion of the mortgage guaranty insurance business is retained, with the exposure on any one risk currently averaging less than $20. The maximum amount of ordinary life insurance retained on any one life by the Life Insurance Group (without reinsurance) is $250.
Most of the reinsurance ceded by the Corporation's insurance subsidiaries in the ordinary course of business is placed on a quota share or excess of loss basis. Under quota share reinsurance, the companies remit an agreed upon percentage of their premiums written to assuming companies and are reimbursed for a pro-rata share of claims and commissions incurred and for a ceding commission to cover expenses and costs for underwriting and claim services performed. Under excess of loss reinsurance agreements, the companies are generally reimbursed for losses exceeding contractually agreed-upon levels. The following information relates to reinsurance and related data for the General Insurance, Mortgage Guaranty and Life Insurance Groups for the three years ended December 31, 1993. For the years 1991 to 1993, reinsurance transactions of the Title Insurance Group have not been material.
(b) Leases-Some of the Corporation's subsidiaries maintain their offices in leased premises. Certain of these leases provide for the payment of real estate taxes, insurance, and other operating expenses. At December 31, 1993, aggregate minimum rental commitments (net of expected sub-lease receipts) under noncancellable operating leases of $106.2 are summarized as follows: 1994: $25.8; 1995: $20.2; 1996: $13.8: 1997: $9.5; 1998: $6.5; 1999 and after: $30.0.
(c) General-In the normal course of business, the Corporation and its subsidiaries are subject to various contingent liabilities, including possible income tax assessments resulting from tax law interpretations or issues raised by taxing authorities in their regular examinations. Management does not anticipate any significant losses or costs to result from any known or existing contingencies. (d) Legal Proceedings-There are no material legal proceedings other than those arising in the normal course of business and which generally pertain to claim matters related to insurance policies and contracts issued by the Corporation's insurance subsidiaries.
Note 6-Consolidated Quarterly Results-Unaudited - Old Republic's consolidated quarterly operating data for the two years ended December 31, 1993 is presented below. In the opinion of management, all adjustments consisting of normal recurring adjustments necessary to a fair presentation of quarterly results have been reflected in the data which follows. It is also management's opinion, however, that quarterly operating data for insurance enterprises is not indicative of results to be achieved in succeeding quarters or years. The long-term nature of the insurance business, seasonal patterns in premium production and incidence of claims, and changes in yields on invested assets are some of the factors necessitating a review of operating results, changes in shareholders' equity, and cash flows for periods of several years to obtain a proper indicator of performance. The data below should be read in conjunction with the "Management Analysis of Financial Position and Results of Operations":
Note 7-Information About Segments of Business - The contributions of Old Republic's insurance industry segments to consolidated revenues and operating results, and certain balance sheet data pertaining thereto are shown in the following tables on the basis of generally accepted accounting principles ("GAAP"). Each of the Corporation's segments underwrites and services only those insurance coverages which may be written by it pursuant to state insurance regulations and corporate charter provisions, although disability/accident & health coverages may be written directly or indirectly through reinsurance in either the General or Life Insurance segments.
In computing the profit or loss before taxes for each segment, the following items have not been added or deducted: general corporate revenues and expenses, parent company interest expense, income taxes, and equity in operating results of, or dividends from, unconsolidated subsidiaries and affiliates. To reconcile the total assets shown for the General, Title, Mortgage Guaranty and Life Groups with total consolidated assets at December 31, 1993 and 1992, adjustments must be made for the parent company assets of $1,650.1 and $1,474.4, and consolidating eliminations of $2,022.9 and $1,578.8, respectively.
Revenues and assets connected with foreign operations are not significant in relation to consolidated totals.
Note 8-Related Party Transactions - At December 31, 1993 and 1992, the Corporation owned 98.79% of the non-voting common shares, and 40% of the voting common and preferred shares of the American Business & Mercantile Insurance Group, Inc., ("AB&M Group" or "Group"), an affiliated insurance holding company engaged in the property and liability reinsurance business. As of the same dates, the American Business & Mercantile Insurance Mutual, Inc. ("Mutual"), a property & liability mutual insurer owned by its policyholders, held directly or through a subsidiary 0.10% of the non-voting common shares and 60% of the Group's voting common and preferred shares. At both dates, 1.11% of the Group's non-voting common shares were held by public shareholders.
Pursuant to underwriting and investment management agreements, Old Republic receives management fees for administering the affairs of the Group's reinsurance subsidiary and those of the Mutual. Pursuant to reinsurance treaties, the Group is a quota share participant in various types of primary and assumed reinsurance contracts produced through Old Republic underwriting facilities. Fees received in the past three years by Old Republic were im- material. The following table shows reinsurance cessions and retrocessions to the Group's reinsurance subsidiary and assumptions by Old Republic of business ceded by the Mutual for the last three years.
Certain subsidiaries of the Company have sold various accounts receivable to a finance company subsidiary of the Mutual. Total receivables sold as of December 31, 1993 and 1992 amounted to approximately $8.5 and $12.6, respectively.
At December 31, 1993 and 1992, the Group held approximately 8.0% and 8.2%, respectively, of Old Republic's issued and outstanding common shares. For financial accounting purposes only, 4,439,267 of such shares have been treated as treasury shares at each respective date in consolidating the Group's accounts with those of the Corporation.
In the normal course of business, the Company cedes, on the same terms as apply to unrelated reinsurers, certain parts of its outgoing reinsurance to a foreign reinsurer in which it has an equity interest. Total premiums ceded to this reinsurer amounted to approximately $5.6 in 1993, $5.8 in 1992, and $3.3 in 1991. As of December 31, 1993 and 1992, total premium and loss reserve credits taken on account of cumulative cessions aggregated $63.7 and $50.6, respectively, all of which credits were collateralized by cash, investments and funds held amounting to $70.7 and $56.7, respectively.
At December 31, 1993, the Corporation owned 80.0% of the voting common stock of Employers General Insurance Group, Inc. ("EGI") an affiliated insurance holding company engaged in the property and liability insurance and reinsurance business, primarily in Texas. At such date, 20.0% of EGI's voting common stock was held by public shareholders.
Pursuant to a branch management agreement, EGI supervises the solicitation and underwriting of all lines of insurance that two insurance subsidiaries of Old Republic are authorized to write. EGI's Texas domiciled insurance subsidiary has entered into a quota share reinsurance treaty with an insurance subsidiary of Old Republic. Under the reinsurance treaty, EGI's insurance subsidiary will reinsure the net retained amount of business produced by EGI and its subsidiaries.
EGI commenced operations in May, 1992, its insurance subsidiary received its license in December, 1993. The following table is a summary of intercompany transactions:
Ceded to EGI 1993 1992 Premiums written $ 47.6 $ - Losses and loss expenses 30.4 - Loss and loss expense reserves 22.9 - Unearned premiums $ 13.1 $ -
EGI has also entered into an investment counsel agreement with Old Republic. Old Republic provides investment advise, accounting services and assists EGI in executing purchases and sales of investments. Fees received by Old Republic were immaterial.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Old Republic International Corporation Chicago, Illinois
We have audited the accompanying consolidated balance sheets of Old Republic International Corporation and subsidiaries (the "Company") as of December 31, 1993 and 1992, and the related consolidated statements of income, preferred stock and common shareholders' equity and cash flows for each of the three years in the period ended December 31, 1993. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Old Republic International Corporation and subsidiaries as of December 31, 1993 and 1992, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1993 in conformity with generally accepted accounting principles.
As discussed in footnote 1(g), 1(h) and 1(l) to the consolidated financial statements, the Company changed its method of accounting for ceded reinsurance, income taxes and post retirement benefits other than pensions in 1993.
Coopers & Lybrand
Chicago, Illinois March 15, 1994
Item 9
Item 9 - Disagreements on Accounting and Financial Disclosure
None.
PART III
Item 10


Item 10 - Directors and Executive Officers of the Registrant
Omitted pursuant to General Instruction G(3). The Company will file with the Commission prior to April 1, 1994 a definitive proxy statement pursuant to Regulation 14A in connection with its Annual Meeting of shareholders to be held on May 13, 1994. See also Item 4(a) in Part I of this report. A list of Directors appears on the "Signature" page of this report.
Item 11
Item 11 - Executive Compensation
Omitted pursuant to General Instruction G(3). The Company will file with the Commission prior to April 1, 1994 a definitive proxy statement pursuant to Regulation 14A in connection with its Annual Meeting of shareholders to be held on May 13, 1994.
Item 12
Item 12 - Security Ownership of Certain Beneficial Owners and Management
Omitted pursuant to General Instruction G(3). The Company will file with the Commission prior to April 1, 1994 a definitive proxy statement pursuant to Regulation 14A in connection with its Annual Meeting of shareholders to be held on May 13, 1994.
Item 13
Item 13 - Certain Relationships and Related Transactions
Omitted pursuant to General Instruction G(3). The Company will file with the Commission prior to April 1, 1994 a definitive proxy statement pursuant to Regulation 14A in connection with its Annual Meeting of shareholders to be held on May 13, 1994.
PART IV
Item 14
Item 14 - Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Documents filed as a part of this report: 1. Financial statements: See Item 8, Index to Financial Statements. 2. Financial statement schedules will be filed on or before April 30, 1994 under cover of Form 8. 3. See exhibit index of this report.
(b) Reports on Form 8-K: 1. No reports on Form 8-K were filed during the fourth quarter of 1993.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized (Name, Title or Principal Capacity, and Date).
(Registrant): Old Republic International Corporation
/s/ A.C. Zucaro 3/30/94 A. C. Zucaro, Chairman of the Board, Date Chief Executive Officer, President and Director
/s/ Paul D. Adams 3/30/94 Paul D. Adams, Senior Vice President, Date Chief Financial Officer and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated (Name, Title or Principal Capacity, and Date).
Anthony F. Colao, Director*John W. Popp, Director* Senior Vice President
John C. Collopy, Director*William A. Simpson, Director* President of Republic Mortgage Insurance Company
Jimmy A. Dew, Director*Arnold L. Steiner, Director* Executive Vice President of Republic Mortgage Insurance Company
Darrel M. Holt, Director* William R. Stover, Director* Kurt W. Kreyling, Director* David Sursa, Director* Peter Lardner, Director* William G. White, Jr., Director* President of Bituminous Casualty Corporation
Wilbur S. Legg, Director*
* By/S/A. C. Zucaro Attorney-in-fact Date: March 16, 1994
EXHIBIT INDEX
An index of exhibits required by item 601 of Regulation S-K follows:
(3) Articles of incorporation and by-laws.
(A) Restated Certificate of Incorporation, as amended.
(B) By-laws, as amended.
(4) Instruments defining the rights of security holders, including indentures.
(A) * Certificates of Designations, as amended, with respect to Series A Preferred Stock, Series B Cumulative Convertible Preferred Stock, Series C Cumulative Convertible Preferred Stock, Series D Cumulative Convertible Preferred Stock, Series E Cumulative Convertible Preferred Stock, Series F Convertible Exchangeable Preferred Stock, Series G Convertible Preferred Stock and Series H Cumulative Preferred Stock. (Exhibit 4(A) to Registrant's Annual Report on Form 10-K for 1991).
(B) * Form of Indenture dated June 1, 1985 between Old Republic International Corporation and Morgan Guaranty Trust Company of New York, as Trustee, regarding the 11 1/2% Sinking Fund Debentures due 2015 (Exhibit 4.3 to Form S-3 Registration Statement No. 2-98167).
(C) * Form of Indenture dated as of January 15, 1988 between Old Republic International Corporation and Morgan Guaranty Trust Company of New York, as Trustee, regarding the 10% Sinking Fund Debentures due 2018 (Exhibit 4(D) to Registrant's Annual Report on Form 10-K for 1987).
(D) * Agreement to furnish certain long term debt instruments to the Securities & Exchange Commission upon request (Exhibit 4(D) to Form 8 dated August 28, 1987).
(E) * Rights Agreement dated as of June 26, 1987 between Old Republic International Corporation and Morgan Shareholder Services Trust Company (Exhibit 4 to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1987).
(F) * Form of Indenture dated as of August 15, 1992 between Old Republic International Corporation and Wilmington Trust Company, as Trustee, regarding the 5 3/4% Convertible Subordinated Debentures due August 15, 2002. (Exhibit 4(G) to Registrant's Annual Report on Form 10-K for 1993).
(10) Material contracts.
(A) * Copy of Old Republic International Corporation Employees Savings and Stock Ownership Plan (Exhibit 10(A) to Registrant's Annual Report on Form 10-K for 1991).
(B) Form 11 -K for Registrant's Employee Savings and Stock Ownership Plan for the year ended December 31, 1993 (To be filed by amendments).
** (C) * Copy of Old Republic International Corporation Key Employees Performance Recognition Plan, as restated and amended (Exhibit 10(C) to Registrant's Annual Report on Form 10-K for 1991).
** (D) * Copy of Old Republic International Corporation Non-qualified Stock Option Plan (Exhibit to Form S-8 Registration Statement No. 2-66302).
** (E) * Amendments to Old Republic International Corporation Non-qualified Stock Option Plan (Exhibit 10(E) to Registrant's Annual Report on Form 10-K for 1991).
** (F) * 1985 Old Republic International Corporation Non-qualified Stock Option Plan A (Exhibit 10.1 to Form S-3 Registration Statement No. 2-98166).
** (G) * Amendments to 1985 Old Republic International Corporation Non-qualified Stock Option Plan A (Exhibit 10(G) to Registrant's Annual Report on Form 10-K for 1991).
** (H) * 1985 Old Republic International Corporation Non-qualified Stock Option Plan B (Exhibit 10.2 to Form S-3 Registration Statement No. 2-98166).
** (I) * 1990 Old Republic International Corporation Non-qualified Stock Option Plan (Exhibit 10 to Form S-8 Registration Statement No. 33-37692).
** (J) * 1992 Old Republic International Corporation Non-qualified Stock Option Plan (Exhibit 10 to Form S-8 Registration Statement No. 33-49646).
(K) * Old Republic International Corporation Employees Retirement Plan (Exhibit 10(J) to Registrant's Annual Report on Form 10-K for 1991).
** (L) * Old Republic International Corporation Executives Excess Benefits Pension Plan (Exhibit 10.16 to Registration Statement No. 2-95243).
** (M) * Form of Indemnity Agreement between Old Republic International Corporation and each of its directors and certain officers (Exhibit 10 to Form S-3 Registration Statement No. 33-16836).
** (N) * Copy of directors and officers liability and company reimbursement policy dated October 6, 1970 (Exhibit 12(A) to Form S-1 Registration Statement No. 2-41089).
(O) * Copy of Bitco Savings Plan (Exhibit 4.3 to Form S-8 Registration Statement No. 33-32439).
(P) Form 11-K for Bitco Savings Plan for the year ended December 31, 1993 (To be filed by amendments).
(Q) * Copy of RMIC Corporation Profit-Sharing Plan (Exhibit 10(M) to Registrant's Annual Report on Form 10-K for 1980).
** (R) * Copy of a written description of the RMIC Key Employees Performance Recognition Plan (Exhibit 10(Q) to Registrant's Annual Report on Form 10-K for 1991).
(S) Form 11-K for the Great West Casualty Company Profit Sharing Plan for the year ended December 31, 1993 (To be filed by amendments).
** (T) * Copy of deferred compensation agreement dated November 4, 1976, as amended, between RMIC Corporation and William A. Simpson (Exhibit 10(J) to Registrant's Annual Report on Form 10-K for 1980).
** (U) * Copy of deferred compensation agreement dated November 4, 1976, as amended, between RMIC Corporation and Jimmy A. Dew (Exhibit 10(K) to Registrant's Annual Report on Form 10-K for 1980).
** (V) * Copy of Incentive Compensation Plan of The Founders Title Group, Inc. (Exhibit 10(N) to Registrant's Annual Report on Form 10-K for 1980).
** (W) Copy of part time employment agreement between Old Republic Title Company and John C. Collopy.
(X) * Placement Agency Agreement dated November 16, 1987 among Old Republic International Corporation, Old Republic Capital Corporation and Merrill Lynch Money Markets Inc. (Exhibit 10.1 to Form S-3 Registration Statement No. 33-16836).
(Y) * Issuing and Paying Agency Agreement dated November 16, 1987 among Old Republic International Corporation, Old Republic Capital Corporation and Morgan Guaranty Trust Company of New York (Exhibit 10.2 to Form S-3 Registration Statement No. 33-16836).
(11) Schedule showing computations of average number of common shares outstanding, as used in the calculations of per share earnings for each of the three years ended December 31, 1993, 1992 and 1991.
(21) Subsidiaries of the registrant.
(23) Consent of Coopers & Lybrand.
(24) Powers of attorney
(28) Consolidated Schedule P (To be filed by amendment.)
* Exhibit incorporated herein by reference.
** Denotes a management or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 601 of Regulation S-K.
Exhibit (23)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of Old Republic International Corporation on Form S-8 (File Nos. 2-66302, 33-38528, 33-38525, 33-37692, 33-49646, 33-32439 and 2-80883) and on Form S-3 (File Nos 33-29220, 33-49864 and 33-54104) of our report dated March 15, 1994 on our audits of the consolidated financial statements of Old Republic International Corporation as of December 31, 1993 and 1992, and for the years ended December 31, 1993, 1992, and 1991, which report is included in this Annual Report on Form 10-K.
Coopers & Lybrand
Chicago, Illinois March 15, 1994
Exhibit (24)
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned, being a member of the Board of Directors of Old Republic International Corporation, a corporation duly organized under the laws of the State of Delaware and having its principal place of business in Chicago, Illinois, does hereby make, constitute, and appoint A.C. Zucaro, President of the said corporation, as his true and lawful attorney, for him, and in his name, place, and stead to execute, sign, acknowledge, confirm or ratify all documents, papers, forms, statements, certificates and filings of any kind whatsoever required to be filed by the said corporation with the Securities and Exchange Commission, giving and granting to said attorney full power and authority to do and perform all and every act whatsoever requisite and necessary to be done in and about the premises as fully, to all intents and purposes, as he might or could do if personally present, with full power of substitution and revocation, hereby ratifying and confirming all that said attorney or his substitute shall lawfully do or cause to be done by virtue hereof. The power of attorney aforesaid shall expire as of the anniversary of the date shown below.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this 16th day of March, 1994.
/s/ Darrel M. Holt Darrel M. Holt
WITNESS:
/s/ Spencer LeRoy, III
/s/ Paul D. Adams
Exhibit (24)
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned, being a member of the Board of Directors of Old Republic International Corporation, a corporation duly organized under the laws of the State of Delaware and having its principal place of business in Chicago, Illinois, does hereby make, constitute, and appoint A.C. Zucaro, President of the said corporation, as his true and lawful attorney, for him, and in his name, place, and stead to execute, sign, acknowledge, confirm or ratify all documents, papers, forms, statements, certificates and filings of any kind whatsoever required to be filed by the said corporation with the Securities and Exchange Commission, giving and granting to said attorney full power and authority to do and perform all and every act whatsoever requisite and necessary to be done in and about the premises as fully, to all intents and purposes, as he might or could do if personally present, with full power of substitution and revocation, hereby ratifying and confirming all that said attorney or his substitute shall lawfully do or cause to be done by virtue hereof. The power of attorney aforesaid shall expire as of the anniversary of the date shown below.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this 16th day of March, 1994.
/s/ William G. White, Jr. William G. White, Jr.
WITNESS:
/s/ Spencer LeRoy, III
/s/ Paul D. Adams
Exhibit (24)
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned, being a member of the Board of Directors of Old Republic International Corporation, a corporation duly organized under the laws of the State of Delaware and having its principal place of business in Chicago, Illinois, does hereby make, constitute, and appoint A.C. Zucaro, President of the said corporation, as his true and lawful attorney, for him, and in his name, place, and stead to execute, sign, acknowledge, confirm or ratify all documents, papers, forms, statements, certificates and filings of any kind whatsoever required to be filed by the said corporation with the Securities and Exchange Commission, giving and granting to said attorney full power and authority to do and perform all and every act whatsoever requisite and necessary to be done in and about the premises as fully, to all intents and purposes, as he might or could do if personally present, with full power of substitution and revocation, hereby ratifying and confirming all that said attorney or his substitute shall lawfully do or cause to be done by virtue hereof. The power of attorney aforesaid shall expire as of the anniversary of the date shown below.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this 16th day of March, 1994.
/s/ Peter Lardner Peter Lardner
WITNESS:
/s/ Spencer LeRoy, III
/s/ Paul D. Adams
Exhibit (24)
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned, being a member of the Board of Directors of Old Republic International Corporation, a corporation duly organized under the laws of the State of Delaware and having its principal place of business in Chicago, Illinois, does hereby make, constitute, and appoint A.C. Zucaro, President of the said corporation, as his true and lawful attorney, for him, and in his name, place, and stead to execute, sign, acknowledge, confirm or ratify all documents, papers, forms, statements, certificates and filings of any kind whatsoever required to be filed by the said corporation with the Securities and Exchange Commission, giving and granting to said attorney full power and authority to do and perform all and every act whatsoever requisite and necessary to be done in and about the premises as fully, to all intents and purposes, as he might or could do if personally present, with full power of substitution and revocation, hereby ratifying and confirming all that said attorney or his substitute shall lawfully do or cause to be done by virtue hereof. The power of attorney aforesaid shall expire as of the anniversary of the date shown below.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this 16th day of March, 1994.
/s/ Anthony F. Colao Anthony F. Colao
WITNESS:
/s/ Spencer LeRoy, III
/s/ Paul D. Adams
Exhibit (24)
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned, being a member of the Board of Directors of Old Republic International Corporation, a corporation duly organized under the laws of the State of Delaware and having its principal place of business in Chicago, Illinois, does hereby make, constitute, and appoint A.C. Zucaro, President of the said corporation, as his true and lawful attorney, for him, and in his name, place, and stead to execute, sign, acknowledge, confirm or ratify all documents, papers, forms, statements, certificates and filings of any kind whatsoever required to be filed by the said corporation with the Securities and Exchange Commission, giving and granting to said attorney full power and authority to do and perform all and every act whatsoever requisite and necessary to be done in and about the premises as fully, to all intents and purposes, as he might or could do if personally present, with full power of substitution and revocation, hereby ratifying and confirming all that said attorney or his substitute shall lawfully do or cause to be done by virtue hereof. The power of attorney aforesaid shall expire as of the anniversary of the date shown below.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this 16th day of March, 1994.
/s/ Kurt W. Kreyling Kurt W. Kreyling
WITNESS:
/s/ Spencer LeRoy, III
/s/ Paul D. Adams
Exhibit (24)
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned, being a member of the Board of Directors of Old Republic International Corporation, a corporation duly organized under the laws of the State of Delaware and having its principal place of business in Chicago, Illinois, does hereby make, constitute, and appoint A.C. Zucaro, President of the said corporation, as his true and lawful attorney, for him, and in his name, place, and stead to execute, sign, acknowledge, confirm or ratify all documents, papers, forms, statements, certificates and filings of any kind whatsoever required to be filed by the said corporation with the Securities and Exchange Commission, giving and granting to said attorney full power and authority to do and perform all and every act whatsoever requisite and necessary to be done in and about the premises as fully, to all intents and purposes, as he might or could do if personally present, with full power of substitution and revocation, hereby ratifying and confirming all that said attorney or his substitute shall lawfully do or cause to be done by virtue hereof. The power of attorney aforesaid shall expire as of the anniversary of the date shown below.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this 16th day of March, 1994.
/s/ John C. Collopy John C. Collopy
WITNESS:
/s/ Spencer LeRoy, III
/s/ Paul D. Adams
Exhibit (24)
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned, being a member of the Board of Directors of Old Republic International Corporation, a corporation duly organized under the laws of the State of Delaware and having its principal place of business in Chicago, Illinois, does hereby make, constitute, and appoint A.C. Zucaro, President of the said corporation, as his true and lawful attorney, for him, and in his name, place, and stead to execute, sign, acknowledge, confirm or ratify all documents, papers, forms, statements, certificates and filings of any kind whatsoever required to be filed by the said corporation with the Securities and Exchange Commission, giving and granting to said attorney full power and authority to do and perform all and every act whatsoever requisite and necessary to be done in and about the premises as fully, to all intents and purposes, as he might or could do if personally present, with full power of substitution and revocation, hereby ratifying and confirming all that said attorney or his substitute shall lawfully do or cause to be done by virtue hereof. The power of attorney aforesaid shall expire as of the anniversary of the date shown below.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this 16th day of March, 1994.
/s/ David Sursa David Sursa
WITNESS:
/s/ Spencer LeRoy, III
/s/ Paul D. Adams
Exhibit (24)
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned, being a member of the Board of Directors of Old Republic International Corporation, a corporation duly organized under the laws of the State of Delaware and having its principal place of business in Chicago, Illinois, does hereby make, constitute, and appoint A.C. Zucaro, President of the said corporation, as his true and lawful attorney, for him, and in his name, place, and stead to execute, sign, acknowledge, confirm or ratify all documents, papers, forms, statements, certificates and filings of any kind whatsoever required to be filed by the said corporation with the Securities and Exchange Commission, giving and granting to said attorney full power and authority to do and perform all and every act whatsoever requisite and necessary to be done in and about the premises as fully, to all intents and purposes, as he might or could do if personally present, with full power of substitution and revocation, hereby ratifying and confirming all that said attorney or his substitute shall lawfully do or cause to be done by virtue hereof. The power of attorney aforesaid shall expire as of the anniversary of the date shown below.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this 16th day of March, 1994.
/s/ Jimmy A. Dew Jimmy A. Dew
WITNESS:
/s/ Spencer LeRoy, III
/s/ Paul D. Adams
Exhibit (24)
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned, being a member of the Board of Directors of Old Republic International Corporation, a corporation duly organized under the laws of the State of Delaware and having its principal place of business in Chicago, Illinois, does hereby make, constitute, and appoint A.C. Zucaro, President of the said corporation, as his true and lawful attorney, for him, and in his name, place, and stead to execute, sign, acknowledge, confirm or ratify all documents, papers, forms, statements, certificates and filings of any kind whatsoever required to be filed by the said corporation with the Securities and Exchange Commission, giving and granting to said attorney full power and authority to do and perform all and every act whatsoever requisite and necessary to be done in and about the premises as fully, to all intents and purposes, as he might or could do if personally present, with full power of substitution and revocation, hereby ratifying and confirming all that said attorney or his substitute shall lawfully do or cause to be done by virtue hereof. The power of attorney aforesaid shall expire as of the anniversary of the date shown below.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this 16th day of March, 1994.
/s/ John W. Popp John W. Popp
WITNESS:
/s/ Spencer LeRoy, III
/s/ Paul D. Adams
Exhibit (24)
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned, being a member of the Board of Directors of Old Republic International Corporation, a corporation duly organized under the laws of the State of Delaware and having its principal place of business in Chicago, Illinois, does hereby make, constitute, and appoint A.C. Zucaro, President of the said corporation, as his true and lawful attorney, for him, and in his name, place, and stead to execute, sign, acknowledge, confirm or ratify all documents, papers, forms, statements, certificates and filings of any kind whatsoever required to be filed by the said corporation with the Securities and Exchange Commission, giving and granting to said attorney full power and authority to do and perform all and every act whatsoever requisite and necessary to be done in and about the premises as fully, to all intents and purposes, as he might or could do if personally present, with full power of substitution and revocation, hereby ratifying and confirming all that said attorney or his substitute shall lawfully do or cause to be done by virtue hereof. The power of attorney aforesaid shall expire as of the anniversary of the date shown below.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this 16th day of March, 1994.
/s/ Wilbur S. Legg Wilbur S. Legg
WITNESS:
/s/ Spencer LeRoy, III
/s/ Paul D. Adams
Exhibit (24)
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned, being a member of the Board of Directors of Old Republic International Corporation, a corporation duly organized under the laws of the State of Delaware and having its principal place of business in Chicago, Illinois, does hereby make, constitute, and appoint A.C. Zucaro, President of the said corporation, as his true and lawful attorney, for him, and in his name, place, and stead to execute, sign, acknowledge, confirm or ratify all documents, papers, forms, statements, certificates and filings of any kind whatsoever required to be filed by the said corporation with the Securities and Exchange Commission, giving and granting to said attorney full power and authority to do and perform all and every act whatsoever requisite and necessary to be done in and about the premises as fully, to all intents and purposes, as he might or could do if personally present, with full power of substitution and revocation, hereby ratifying and confirming all that said attorney or his substitute shall lawfully do or cause to be done by virtue hereof. The power of attorney aforesaid shall expire as of the anniversary of the date shown below.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this 16th day of March, 1994.
/s/ William A. Simpson William A. Simpson
WITNESS:
/s/ Spencer LeRoy, III
/s/ Paul D. Adams
Exhibit (24)
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned, being a member of the Board of Directors of Old Republic International Corporation, a corporation duly organized under the laws of the State of Delaware and having its principal place of business in Chicago, Illinois, does hereby make, constitute, and appoint A.C. Zucaro, President of the said corporation, as his true and lawful attorney, for him, and in his name, place, and stead to execute, sign, acknowledge, confirm or ratify all documents, papers, forms, statements, certificates and filings of any kind whatsoever required to be filed by the said corporation with the Securities and Exchange Commission, giving and granting to said attorney full power and authority to do and perform all and every act whatsoever requisite and necessary to be done in and about the premises as fully, to all intents and purposes, as he might or could do if personally present, with full power of substitution and revocation, hereby ratifying and confirming all that said attorney or his substitute shall lawfully do or cause to be done by virtue hereof. The power of attorney aforesaid shall expire as of the anniversary of the date shown below.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this 16th day of March, 1994.
/s/ Arnold L. Steiner Arnold L. Steiner
WITNESS:
/s/ Spencer LeRoy, III
/s/ Paul D. Adams
Exhibit (24)
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned, being a member of the Board of Directors of Old Republic International Corporation, a corporation duly organized under the laws of the State of Delaware and having its principal place of business in Chicago, Illinois, does hereby make, constitute, and appoint A.C. Zucaro, President of the said corporation, as his true and lawful attorney, for him, and in his name, place, and stead to execute, sign, acknowledge, confirm or ratify all documents, papers, forms, statements, certificates and filings of any kind whatsoever required to be filed by the said corporation with the Securities and Exchange Commission, giving and granting to said attorney full power and authority to do and perform all and every act whatsoever requisite and necessary to be done in and about the premises as fully, to all intents and purposes, as he might or could do if personally present, with full power of substitution and revocation, hereby ratifying and confirming all that said attorney or his substitute shall lawfully do or cause to be done by virtue hereof. The power of attorney aforesaid shall expire as of the anniversary of the date shown below.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this 16th day of March, 1994.
/s/ William R. Stover William R. Stover
WITNESS:
/s/ Spencer LeRoy, III
/s/ Paul D. Adams