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SECURITIES AND EXCHANGE COMMISSION
OF THE SECURITIES EXCHANGE ACT OF 1934
FORM 10 - Q
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended September 30, 2003 or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934
Commission File Number 001-10607
OLD REPUBLIC INTERNATIONAL CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware No. 36-2678171
- ------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
307 North Michigan Avenue, Chicago, Illinois 60601
- --------------------------------------------------------------------------------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: 312-346-8100
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes _X_ No ___
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes _X_ No___
Shares Outstanding
Class September 30, 2003
- ------------------------------- --------------------------------
Common Stock / $1 par value 120,862,976
There are 26 pages contained in this report.
OLD REPUBLIC INTERNATIONAL CORPORATION
Report on Form 10-Q / September 30, 2003
INDEX
- --------------------------------------------------------------------------------
PAGE NO.
----------
PART I FINANCIAL INFORMATION:
CONSOLIDATED SUMMARY BALANCE SHEETS 3
CONSOLIDATED SUMMARY STATEMENTS OF INCOME 4
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME 5
CONSOLIDATED STATEMENTS OF CASH FLOWS 6
NOTES TO CONSOLIDATED SUMMARY FINANCIAL STATEMENTS 7 - 11
MANAGEMENT ANALYSIS OF FINANCIAL POSITION AND
RESULTS OF OPERATIONS 12 - 22
QUANTITATIVE AND QUALITATIVE DISCLOSURE
ABOUT MARKET RISK 23
CONTROLS AND PROCEDURES 23
PART II OTHER INFORMATION 24
SIGNATURE 25
EXHIBIT INDEX 26
2
OLD REPUBLIC INTERNATIONAL CORPORATION
CONSOLIDATED SUMMARY BALANCE SHEETS (Unaudited)
($ in Millions)
- ------------------------------------------------------------------------------------------------------------------------------------
September 30, December 31,
2003 2002
-------------- -------------
Assets
Investments: Available for sale:
Fixed maturity securities (at fair value) (cost: $5,338.7 and $2,989.4) $5,665.5 $3,172.4
Equity securities (at fair value) (cost: $473.4 and $520.3) 497.5 513.5
Short-term investments (at fair value which approximates cost) 442.2 253.8
Miscellaneous investments 51.8 ---
-------------- -------------
Total 6,657.1 3,939.9
-------------- -------------
Held to maturity:
Fixed maturity securities (at amortized cost) (fair value: $-- and $2,171.7) --- 2,054.1
Miscellaneous investments 8.4 57.4
-------------- -------------
Total 8.4 2,111.6
-------------- -------------
Total investments 6,665.6 6,051.5
-------------- -------------
Other Assets: Cash 48.6 37.2
Accrued investment income 78.9 79.4
Accounts and notes receivable 580.6 512.3
Federal income tax recoverable: Current 2.9 1.0
Reinsurance balances and funds held 64.0 58.1
Reinsurance recoverable: Paid losses 43.2 28.9
Policy and claim reserves 1,584.5 1,500.3
Deferred policy acquisition costs 219.7 197.8
Sundry assets 266.7 248.5
-------------- -------------
2,889.5 2,663.8
-------------- -------------
Total Assets $9,555.1 $8,715.4
============== =============
- ------------------------------------------------------------------------------------------------------------------------------------
Liabilities, Preferred Stock and Common Shareholders' Equity
Liabilities: Future policy benefits $99.1 $103.4
Losses, claims and settlement expenses 3,905.2 3,676.8
Unearned premiums 801.8 709.3
Other policyholders' benefits and funds 68.0 62.3
-------------- -------------
Total policy liabilities and accruals 4,874.3 4,552.0
Commissions, expenses, fees and taxes 199.1 195.2
Reinsurance balances and funds 133.9 133.4
Federal income tax payable: Deferred 532.1 445.2
Debt 139.0 141.5
Sundry liabilities 105.3 91.9
Commitments and contingent liabilities --- ---
-------------- -------------
Total liabilities 5,984.1 5,559.5
-------------- -------------
Preferred
Stock: Convertible preferred stock --- ---
-------------- -------------
Common Common stock (*) 122.7 123.7
Shareholders' Additional paid-in capital 239.6 253.1
Equity: Retained earnings 2,986.0 2,700.5
Accumulated other comprehensive income 232.6 111.0
Treasury stock (at cost) (*) (10.0) (32.6)
-------------- -------------
Total Common Shareholders' Equity 3,571.0 3,155.8
-------------- -------------
Total Liabilities, Preferred Stock and Common Shareholders' Equity $9,555.1 $8,715.4
============== =============
(*) At September 30, 2003 and December 31, 2002 there were 500,000,000 shares
of common stock, $1.00 par value, authorized, of which 122,773,338 at
September 30, 2003 and 123,791,366 at December 31, 2002 were issued and
outstanding. As of the same dates there were 100,000,000 shares of Class B
Common Stock, $1.00 par value, authorized, of which no shares were issued.
Common shares classified as treasury stock were 1,910,362 and 3,192,597 as
of September 30, 2003 and December 31, 2002, respectively.
See accompanying notes.
3
OLD REPUBLIC INTERNATIONAL CORPORATION
CONSOLIDATED SUMMARY STATEMENTS OF INCOME (Unaudited)
($ in Millions, Except Common Share Data)
- ------------------------------------------------------------------------------------------------------------------------------------
Quarters Ended Nine Months Ended
September 30, September 30,
--------------------------------- ---------------------------------
2003 2002 2003 2002
---------------- ---------------- ---------------- ----------------
Revenues: Net premiums earned $672.8 $549.6 $1,878.1 $1,551.1
Title, escrow and other fees 105.2 73.6 280.8 199.5
---------------- ---------------- ---------------- ----------------
Total premiums and fees 778.1 623.3 2,158.9 1,750.7
Net investment income 69.1 68.8 208.6 203.7
Other income 14.5 12.1 42.0 32.7
---------------- ---------------- ---------------- ----------------
Total operating revenues 861.8 704.3 2,409.5 1,987.1
Realized investment gains (losses) 4.5 (3.2) 10.5 10.9
---------------- ---------------- ---------------- ----------------
Total revenues 866.4 701.0 2,420.1 1,998.1
---------------- ---------------- ---------------- ----------------
Expenses: Benefits, claims and settlement expenses 289.4 253.1 813.4 708.3
Underwriting, acquisition and
insurance expenses 397.4 304.7 1,090.2 859.1
Interest and other expenses 1.5 1.4 5.1 6.9
---------------- ---------------- ---------------- ----------------
Total expenses 688.4 559.3 1,908.7 1,574.4
---------------- ---------------- ---------------- ----------------
Income before income taxes and items below 177.9 141.6 511.3 423.6
---------------- ---------------- ---------------- ----------------
Income Taxes: Currently payable 46.9 28.1 137.5 78.5
Deferred 10.9 17.1 27.7 45.4
---------------- ---------------- ---------------- ----------------
Total income taxes 57.9 45.2 165.2 123.9
---------------- ---------------- ---------------- ----------------
120.0 96.4 346.1 299.6
Other items - net (0.1) --- (0.2) (0.2)
---------------- ---------------- ---------------- ----------------
Net Income: $119.9 $96.3 $345.8 $299.4
================ ================ ================ ================
Net Income
Per Share: Basic $0.99 $0.80 $2.86 $2.48
================ ================ ================ ================
Diluted $0.98 $0.79 $2.84 $2.46
================ ================ ================ ================
Dividends Per
Common Share: Cash dividends $0.17 $0.16 $0.50 $0.47
================ ================ ================ ================
Average shares outstanding:
Basic 120,858,089 120,549,496 120,849,307 120,529,081
================ ================ ================ ================
Diluted 122,301,762 121,487,344 121,911,773 121,558,013
================ ================ ================ ================
See accompanying notes.
4
OLD REPUBLIC INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
($ in Millions)
- ------------------------------------------------------------------------------------------------------------------------------------
Quarters Ended Nine Months Ended
September 30, September 30,
--------------------------------- ---------------------------------
2003 2002 2003 2002
---------------- ---------------- ---------------- ----------------
Net income as reported $119.9 $96.3 $345.8 $299.4
---------------- ---------------- ---------------- ----------------
Other comprehensive income (loss):
Foreign currency translation adjustment (0.1) (3.0) 10.7 ---
---------------- ---------------- ---------------- ----------------
Unrealized gains (losses) on securities:
Unrealized gains (losses) arising during period (40.9) (8.7) 180.9 (10.3)
Less: elimination of pretax realized gains (losses)
included in income as reported 4.5 (3.2) 10.5 10.9
---------------- ---------------- ---------------- ----------------
Pretax unrealized gains (losses) on securities
carried at market value (45.5) (5.4) 170.3 (21.3)
Deferred income taxes (credits) (15.9) (1.7) 59.6 (7.5)
---------------- ---------------- ---------------- ----------------
Net unrealized gains (losses) on securities (29.6) (3.7) 110.7 (13.7)
---------------- ---------------- ---------------- ----------------
Net adjustments (29.7) (6.8) 121.5 (13.7)
---------------- ---------------- ---------------- ----------------
Comprehensive income $90.1 $89.5 $467.4 $285.7
================ ================ ================ ================
See accompanying notes.
5
OLD REPUBLIC INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
($ in Millions)
- ------------------------------------------------------------------------------------------------------------------------------------
Nine Months Ended
September 30,
------------------------------------
2003 2002
----------------- -----------------
Cash flows from operating activities:
Net income $345.8 $299.4
Adjustments to reconcile net income to
net cash provided by operating activities:
Deferred policy acquisition costs (19.9) (18.5)
Premiums and other receivables (56.0) (42.5)
Unpaid claims and related items 140.9 78.3
Future policy benefits and policyholders' funds 86.5 73.2
Income taxes 25.2 36.0
Reinsurance balances and funds (20.2) 4.7
Accounts payable, accrued expenses and other 48.9 20.6
----------------- -----------------
Total 551.3 451.4
----------------- -----------------
Cash flows from investing activities:
Sales of fixed maturity securities:
Available for sale:
Maturities and early calls 583.8 208.3
Other 164.2 158.3
Held to maturity:
Maturities and early calls --- 245.8
Other --- 1.1
Sales of equity securities 137.6 85.4
Sales of other investments 1.5 1.5
Sales of fixed assets for company use 0.4 0.8
Cash and short-term investments of subsidiary acquired --- 1.7
Purchases of fixed maturity securities:
Available for sale (1,046.1) (660.1)
Held to maturity --- (71.7)
Purchases of equity securities (105.3) (272.7)
Purchases of other investments (3.4) (2.0)
Purchases of fixed assets for company use (15.3) (10.2)
Other-net 1.0 (13.4)
----------------- -----------------
Total (281.4) (327.3)
----------------- -----------------
Cash flows from financing activities:
Issuance of preferred and common stocks 5.1 21.3
Repayments of term loans --- (15.0)
Redemption of debentures and notes (2.5) (2.5)
Dividends on common shares (60.3) (56.4)
Dividends on preferred shares --- ---
Other-net (12.3) 3.6
----------------- -----------------
Total (70.1) (49.1)
----------------- -----------------
Increase (decrease) in cash and short-term investments 199.7 75.0
Cash and short-term investments, beginning of period 291.1 336.6
----------------- -----------------
Cash and short-term investments, end of period $490.9 $411.6
================= =================
Supplemental disclosure of cash flow information:
Cash paid during the period for: Interest $4.5 $4.9
================= =================
Income taxes $138.1 $80.1
================= =================
See accompanying notes.
6
OLD REPUBLIC INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED SUMMARY FINANCIAL STATEMENTS (Unaudited)
($ in Millions, Except Share Data)
- --------------------------------------------------------------------------------
1. Accounting Policies and Basis of Presentation:
The accompanying consolidated summary financial statements have been prepared in
conformity with generally accepted accounting principles ("GAAP") as described
in the Corporation's latest annual report to shareholders or otherwise disclosed
herein. The financial accounting and reporting process relies on estimates and
on the exercise of judgment, but in the opinion of management all adjustments,
consisting only of normal recurring accruals, necessary for a fair statement of
the results for the interim periods.
During the first quarter of 2002, the Company adopted Statement of Financial
Accounting Standards No. 142 ("FAS 142") "Goodwill and Other Intangible Assets".
Under FAS 142, goodwill and certain intangible assets will no longer be
amortized against operations but must be tested periodically for possible
impairment of their carrying values. The Company completed the transitional
goodwill impairment test required by FAS 142 in the first quarter of 2002 and
determined that there was no indication of goodwill or intangible asset
impairment. During the first quarter of 2003, the Company tested the carrying
value of its goodwill and intangible assets and determined that there was no
indication of impairment of such assets.
Effective January 1, 2003, the Company elected to reclassify its fixed maturity
securities categorized as held to maturity to the available for sale
classification. The securities involved are primarily utility and tax-exempt
bonds that account for approximately 31 percent of Old Republic's investment
portfolio. The decision was prompted by restrictive accounting rules affecting
held to maturity investment securities. The necessarily mechanical application
of these rules can inhibit the Corporation's ability to optimally manage its
investments from a practical business point of view. As of September 30, 2003,
the net impact of this reclassification on the Corporation's balance sheet is to
increase the carrying value of invested assets by $114.9, deferred tax
liabilities by $40.2, and shareholders' equity by $74.7, or approximately 62
cents per share. This change has no income statement impact, no effect on Old
Republic's ability to hold individual securities to maturity as it may deem
appropriate, and does not affect the Company's necessary long-term orientation
in the management of its business. Going forward, Old Republic's shareholders'
equity account could reflect somewhat greater period-to-period volatility as the
entire bond, note and stock investment portfolio will now be marked to market on
a quarterly basis. Nevertheless, the Company believes that its ability to hold
securities until they mature or until such other time when they can be sold
opportunistically are much more significant factors than the balance sheet or
income statement effect of changes in market values at any point in time.
During the second quarter of 2003, the Company adopted Statement of Financial
Accounting Standards No. 148 ("FAS 148") "Accounting for Stock-Based
Compensation - Transition and Disclosure - an amendment of FAS No. 123" as
described more fully in footnote 2(b) herein.
7
2. Common Share Data:
(a) Earnings Per Share - Common share data has been retroactively adjusted to
reflect all stock dividends and splits. The following table provides a
reconciliation of the income and number of shares used in basic and diluted
earnings per share calculations.
Quarters Ended Nine Months Ended
September 30, September 30,
--------------------------------- ---------------------------------
2003 2002 2003 2002
---------------- ---------------- ---------------- ----------------
Numerator:
Income............................................. $ 119.9 $ 96.3 $ 345.8 $ 299.4
Less preferred stock dividends..................... -- -- -- --
---------------- ---------------- ---------------- ----------------
Numerator for basic earnings per share -
income available to common stockholders .......... 119.9 96.3 345.8 299.4
Effect of dilutive securities:
Convertible preferred stock dividends ............. -- -- -- --
---------------- ---------------- ---------------- ----------------
Numerator for diluted earnings per share -
income available to common stockholders
after assumed conversions.......................... $ 119.9 $ 96.3 $ 345.8 $ 299.4
================ ================ ================ ================
Denominator:
Denominator for basic earnings per share -
weighted-average shares .......................... 120,858,089 120,549,496 120,849,307 120,529,081
Effect of dilutive securities:
Stock options...................................... 1,443,322 932,338 1,058,695 1,017,299
Convertible preferred stock........................ 351 5,510 3,771 11,633
---------------- ---------------- ---------------- ----------------
Dilutive potential common shares................... 1,443,673 937,848 1,062,466 1,028,932
---------------- ---------------- ---------------- ----------------
Denominator for diluted earnings per share -
adjusted weighted-average shares and
assumed conversions................................ 122,301,762 121,487,344 121,911,773 121,558,013
================ ================ ================ ================
Basic earnings per share............................. $ 0.99 $ 0.80 $ 2.86 $ 2.48
================ ================ ================ ================
Diluted earnings per share........................... $ 0.98 $ 0.79 $ 2.84 $ 2.46
================ ================ ================ ================
8
(b) Stock Options - The Financial Accounting Standards Board has issued FAS 148
for periods starting after December 15, 2002. As of April 1, 2003, the Company
adopted the requirements of FAS 148 utilizing the prospective method. Under this
method, stock-based compensation expense is recognized for awards granted after
the beginning of the fiscal year of adoption. For all other stock option awards
outstanding, the Company continues to use the intrinsic value method permitted
under existing accounting pronouncements. The following table shows a comparison
of net income and related per share information as reported, and on a pro-forma
basis on the assumption that the estimated value of stock options was treated as
compensation cost. In estimating the compensation cost of options, the fair
value of options has been calculated using the Black-Scholes option pricing
model. Expense recognition of stock options granted in 2003 reduced earnings per
share by less than one cent per share in this year's third quarter and first
nine months.
Quarters Ended Nine Months Ended
September 30, September 30,
--------------------------------- ---------------------------------
2003 2002 2003 2002
---------------- ---------------- ---------------- ----------------
Comparative data:
Net income:
As reported........................................ $ 119.9 $ 96.3 $ 345.8 $ 299.4
Add: Stock based compensation expense included
in reported income, net of related tax effects.... 0.2 -- 1.1 --
Deduct: Total stock-based compensation expenses
determined under the fair value based method
for all awards, net of related tax effects........ 0.3 -- 4.2 2.9
---------------- ---------------- ---------------- ----------------
Pro-forma basis .................................... $ 119.8 $ 96.3 $ 342.7 $ 296.4
================ ================ ================ ================
Basic earnings per share:
As reported......................................... $ 0.99 $ 0.80 $ 2.86 $ 2.48
Pro-forma basis .................................... 0.99 0.80 2.84 2.46
Diluted earnings per share:
As reported........................................ 0.98 0.79 2.84 2.46
Pro-forma basis ................................... $ 0.98 $ 0.79 $ 2.81 $ 2.44
================ ================ ================ ================
Options were granted during the first quarter of 2003 and 2002 for 1,234,000 and
1,137,600 shares of common stock, respectively. Options outstanding as of
September 30, 2003 and 2002 were 5,770,007 and 4,809,695, respectively. The
maximum number of options available for future issuance as of September 30, 2003
is 1,481,772.
3. Unrealized Appreciation of Investments:
Cumulative net unrealized gains on fixed maturity securities available for sale
and equity securities credited to a separate account in common shareholders'
equity amounted to $233.2 at September 30, 2003. Unrealized appreciation of
investments, before applicable deferred income taxes of $125.6, at September 30,
2003 included gross unrealized gains and (losses) of $408.9 and ($50.0),
respectively.
For the nine months ended September 30, 2003 and 2002, net unrealized
appreciation (depreciation) of investments, net of deferred income taxes
(credits), amounted to $110.7 and ($13.7), respectively.
9
4. Information About Segments of Business:
The Corporation's business segments are organized as the General Insurance
(property and liability insurance), Mortgage Guaranty, Title Insurance and Life
Insurance Groups. 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. Segment results exclude
realized investment gains or losses and impairments as these are aggregated in
consolidated totals. The contributions of Old Republic's insurance industry
segments to GAAP consolidated totals are shown in the following table.
Quarters Ended Nine Months Ended
September 30, September 30,
------------------------------ ------------------------------
2003 2002 2003 2002
-------------- -------------- -------------- --------------
General Insurance:
Net premiums earned................................ $ 359.0 $ 303.4 $ 1,012.0 $ 858.5
Net investment income and other income (a)......... 47.9 48.3 145.1 144.7
-------------- -------------- -------------- --------------
Total operating revenues......................... $ 407.0 $ 351.8 $ 1,157.1 $ 1,003.3
============== ============== ============== ==============
Income before taxes and realized investment gains (losses) $ 64.8 $ 46.8 $ 186.7 $ 132.1
============== ============== ============== ==============
Income tax expense on pretax operating income...... $ 19.3 $ 13.1 $ 55.3 $ 25.1
============== ============== ============== ==============
Mortgage Guaranty:
Net premiums earned................................ $ 100.1 $ 95.9 $ 298.9 $ 278.6
Net investment income and other income (a)......... 25.6 23.2 76.2 66.1
-------------- -------------- -------------- --------------
Total operating revenues......................... $ 125.8 $ 119.1 $ 375.1 $ 344.8
============== ============== ============== ==============
Income before taxes and realized investment gains (losses) $ 69.1 $ 70.8 $ 214.9 $ 212.7
============== ============== ============== ==============
Income tax expense on pretax operating income...... $ 23.3 $ 23.9 $ 72.2 $ 71.9
============== ============== ============== ==============
Title Insurance:
Net premiums earned................................ $ 203.2 $ 135.6 $ 528.4 $ 374.5
Title, escrow and other fees ..................... 105.2 73.6 280.8 199.5
-------------- -------------- -------------- --------------
Sub-total........................................ 308.4 209.2 809.3 574.1
Net investment income and other income (a)......... 6.1 5.7 18.0 17.2
-------------- -------------- -------------- --------------
Total operating revenues......................... $ 314.5 $ 215.0 $ 827.4 $ 591.3
============== ============== ============== ==============
Income before taxes and realized investment gains (losses) $ 43.0 $ 26.9 $ 105.2 $ 68.4
============== ============== ============== ==============
Income tax expense on pretax operating income...... $ 14.9 $ 9.2 $ 36.4 $ 23.3
============== ============== ============== ==============
Life Insurance:
Net premiums earned................................ $ 10.4 $ 14.6 $ 38.6 $ 39.3
Net investment income and other income (a)......... 1.5 1.8 5.0 5.2
-------------- -------------- -------------- --------------
Total operating revenues......................... $ 12.0 $ 16.4 $ 43.6 $ 44.5
============== ============== ============== ==============
Income (loss) before taxes (credits) and realized
investments gains (losses)....................... $ (1.2) $ 1.3 $ 2.0 $ 4.7
============== ============== ============== ==============
Income tax expense (credits) on pretax
operating income (loss).......................... $ (0.3) $ 0.5 $ 0.7 $ 1.8
============== ============== ============== ==============
Consolidated Revenues:
Total operating revenues of Company segments....... $ 859.3 $ 702.5 $ 2,403.3 $ 1,984.1
Net realized investment gains (losses)............. 4.5 (3.2) 10.5 10.9
Other revenues..................................... 4.1 2.7 9.4 5.8
Elimination of intersegment revenues (b)........... (1.6) (0.9) (3.2) (2.8)
-------------- -------------- -------------- --------------
Consolidated revenues............................ $ 866.4 $ 701.0 $ 2,420.1 $ 1,998.1
============== ============== ============== ==============
Consolidated Income Before Taxes:
Total income before taxes and realized investment
gains (losses) of Company segments............... $ 175.8 $ 145.9 $ 509.0 $ 418.0
Net realized investment gains (losses)............. 4.5 (3.2) 10.5 10.9
Other revenues - net............................... (2.4) (1.0) (8.2) (5.3)
-------------- -------------- -------------- --------------
Consolidated income before income taxes.......... $ 177.9 $ 141.6 $ 511.3 $ 423.6
============== ============== ============== ==============
- ------------
In the above tables, net premiums earned on a GAAP basis differ slightly from
statutory amounts due to certain differences in calculations of unearned premium
reserves under each accounting method.
(a) Including unallocated investment income derived from invested capital and
surplus funds./(b) Represents results of holding company parent, consolidation
eliminating adjustments, and general corporate expenses, as applicable.
10
September 30, December 31,
2003 2002
-------------- -------------
Consolidated Assets:
General................................................................................ $ 6,422.4 $ 5,876.5
Mortgage............................................................................... 2,045.9 1,921.2
Title.................................................................................. 705.4 619.9
Life .................................................................................. 237.3 233.3
Consolidated ........................................................................ $ 9,555.1 $ 8,715.4
============== =============
5.Legal Proceedings:
Legal proceedings against the Company arise in the normal course of business and
usually pertain to claim matters related to insurance policies and contracts
issued by its insurance subsidiaries. Other legal proceedings are discussed
below.
In December 1999, a class action lawsuit was filed against the Company's
principal mortgage guaranty insurance subsidiary in the Federal District Court
for the Southern District of Georgia. The suit alleged that the subsidiary
provided pool insurance and other services to mortgage lenders at preferential,
below market prices in return for mortgage insurance business, and that the
practices violated the Real Estate Settlement Procedures Act. Substantially
identical lawsuits were also filed against all of the other mortgage guaranty
insurers. The Company's subsidiary filed a summary judgment motion which the
Court ruled on favorably, dismissing the lawsuit. The class plaintiffs appealed,
and the U.S. Court of Appeals for the Eleventh Circuit vacated the judgment and
remanded the case back to the District Court. The subsidiary again filed motions
seeking summary judgment on grounds it had asserted earlier but which were not
considered by the District Court and opposing certification of the class. On
February 5, 2003, the District Court denied class certification. The plaintiffs
petitioned the Court to reconsider its ruling or, alternatively, to certify
sub-classes. In order to bring the matter to a conclusion and avoid the
uncertainties and expenses of further litigation, the subsidiary entered into
settlement negotiations with the plaintiffs and reached a settlement which
received final approval at a hearing set for that purpose on October 24, 2003.
From the inception of this litigation through September 30, 2003, the subsidiary
has paid or otherwise provided cumulatively $17.8 to cover legal defense and
costs associated with this litigation, including the costs anticipated under the
settlement.
The City and County of San Francisco and certain escrow customers of an
underwritten title agency subsidiary headquartered in the State of California
have filed lawsuits alleging that the subsidiary: 1) failed to escheat unclaimed
escrow funds; 2) charged for services not necessarily provided; and 3) collected
illegal interest payments or fees from banks on the basis of funds held for
escrow customers. The subsidiary in turn conducted an internal review of its
records and concluded that it had certain liabilities for part of the issues
denoted at (1) and (2). The subsidiary defended against the alleged practice
denoted at (3) on the grounds that such practices are common within the
industry, are not in conflict with any laws or regulations, and other
meritorious defenses. The consolidated lawsuits have been tried and a judgment
rendered, affirming in part and denying in part the subsidiary's defenses. In
the aggregate, the judgment, excluding post-judgment interest, amounts to
approximately $33.0. The subsidiary has appealed the most significant portions
of the judgment, and management believes the judgment will be substantially
reduced on appeal. Through September 30, 2003, the subsidiary has continually
evaluated its exposures since the litigation began and has paid or otherwise
provided cumulatively $51.8, including its best estimate of its remaining
liability and costs associated with all these issues.
11
OLD REPUBLIC INTERNATIONAL CORPORATION
MANAGEMENT ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS
Nine Months Ended September 30, 2003 and 2002
- --------------------------------------------------------------------------------
OVERVIEW
This analysis pertains to the consolidated accounts of Old Republic
International Corporation which are presented on the basis of generally accepted
accounting principles ("GAAP"). The Company conducts its business through four
separate segments, namely its General (property and liability coverages),
Mortgage Guaranty, Title, and Life insurance groups. This information should be
read in conjunction with the consolidated financial statements and related
footnotes thereto included elsewhere in this document.
CHANGE IN ACCOUNTING POLICIES
During the first quarter of 2002, the Company adopted Statement of Financial
Accounting Standards No. 142 ("FAS 142") "Goodwill and Other Intangible Assets".
Under FAS 142, goodwill and certain intangible assets will no longer be
amortized against operations but must be tested periodically for possible
impairment of their carrying values. At September 30, 2003 and December 31,
2002, the Company's consolidated unamortized goodwill asset balance was $87.5
million, and the average annual charge from goodwill amortization to operating
results for the three calendar years ended 2001 was approximately $4.0 million
(or 3 cents per average diluted share). The Company completed the transitional
goodwill impairment test required by FAS 142 in the first quarter of 2002 and
determined that there was no indication of goodwill or intangible asset
impairment. During the first quarter of 2003, the Company tested the carrying
value of its goodwill and intangible assets and determined that there was no
indication of impairment of such assets.
Effective January 1, 2003, the Company elected to reclassify its fixed maturity
securities categorized as held to maturity to the available for sale
classification. The securities involved are primarily utility and tax-exempt
bonds that account for approximately 31 percent of Old Republic's investment
portfolio. The decision was prompted by restrictive accounting rules affecting
held to maturity investment securities. The necessarily mechanical application
of these rules can inhibit the Corporation's ability to optimally manage its
investments from a practical business point of view. As of September 30, 2003,
the net impact of this reclassification on the Corporation's balance sheet is to
increase the carrying value of invested assets by $114.9 million, deferred tax
liabilities by $40.2 million, and shareholders' equity by $74.7 million, or
approximately 62 cents per share. This change has no income statement impact, no
effect on Old Republic's ability to hold individual securities to maturity as it
may deem appropriate, and does not affect the Company's necessary long-term
orientation in the management of its business. Going forward, Old Republic's
shareholders' equity account could reflect somewhat greater period-to-period
volatility as the entire bond, note and stock investment portfolio will now be
marked to market on a quarterly basis. Nevertheless, the Company believes that
its ability to hold securities until they mature or until such other time when
they can be sold opportunistically are much more significant factors than the
balance sheet or income statement effect of changes in market values at any
point in time.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 148 ("FAS 148") "Accounting for Stock-Based
Compensation - Transition and Disclosure - an amendment of FAS No. 123" for
periods starting after December 15, 2002. As of April 1, 2003, the Company
adopted the requirements of FAS 148 utilizing the prospective method. Under this
method, stock-based compensation expense is recognized for awards granted after
the beginning of the fiscal year of adoption. For all other stock option awards
outstanding, the Company continues to use the intrinsic value method permitted
under existing accounting pronouncements. In estimating the compensation cost of
options, the fair value of options has been calculated using the Black-Scholes
option pricing model. Expense recognition of stock options granted in 2003
reduced earnings per share by less than one cent per share in this year's third
quarter and first nine months.
FINANCIAL POSITION
Old Republic's financial position at September 30, 2003 reflected increases in
assets, liabilities and common shareholders' equity when compared to the
immediately preceding year-end of 9.6%, 7.6% and 13.2%, respectively. Cash and
invested assets represented 71.1% and 70.8% of consolidated assets as of
September 30, 2003 and December 31, 2002, respectively. Consolidated operating
cash flow was positive at $551.3 million in this year's first nine months,
compared to $451.4 million in the same period of 2002, due to higher
contributions by the Company's General and Title insurance segments. As of
September 30, 2003, the invested asset base had increased 10.1% to $6.79 billion
when compared to the immediately preceding year-end, principally as a result of
the greater operating cash flow and the greater increase in fair value of
investments resulting from the aforementioned reclassification of fixed maturity
securities.
During the first nine months of 2003, the Corporation committed substantially
all investable funds to 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. Investable funds have not been
directed to so-called "junk bonds" or types of securities categorized as
derivatives. At September 30, 2003, the investment in equity securities
reflected a decline of 3.1% in relation to the related invested balance at
year-end 2002; this resulted mostly from sales of equity securities, partially
offset by purchases and net unrealized gains on the remaining holdings. The
carrying value of fixed maturity securities in default as to principal and/or
interest as of the latest balance sheet date was immaterial in relation to
consolidated assets and shareholders' equity.
12
Relatively high short-term maturity investment positions continued to be
maintained as of September 30, 2003. Such investment positions reflect a large
variety of seasonal and intermediate-term factors including current operating
needs, expected operating cash flows, and investment strategy considerations.
Accordingly, the future level of short-term investments will vary and respond to
the interplay of these factors and may, as a result, increase or decrease from
current levels.
The Company does not own or utilize derivative financial instruments for the
purpose of hedging, enhancing the overall return of its investment portfolio, or
reducing the cost of its debt obligations. With regard to its equity portfolio,
the Company does not own any options nor does it engage in any type of option
writing. Traditional investment management tools and techniques are employed to
address the yield and valuation exposures of the invested assets base. The
long-term fixed maturity investment portfolio is managed so as to limit various
risks inherent in the bond market. Credit risk is addressed through asset
diversification and the purchase of investment grade securities. Reinvestment
rate risk is reduced by concentrating on non-callable issues, and by taking
asset-liability matching considerations into account. Purchases of mortgage and
asset backed securities, which have variable principal prepayment options, are
generally avoided. Market value risk is limited through the purchase of bonds of
intermediate maturity. The combination of these investment management practices
is expected to produce a more stable long-term fixed maturity investment
portfolio that is not subject to extreme interest rate sensitivity and principal
deterioration. The market value of the Company's long-term fixed maturity
investment portfolio is sensitive, however, to fluctuations in the level of
interest rates, but not materially affected by changes in anticipated cash flows
caused by any prepayments. The impact of interest rate movements on the
long-term fixed maturity investment portfolio generally affects net unrealized
gains or losses. As a general rule, rising interest rates enhance currently
available yields but typically lead to a reduction in the fair value of existing
fixed maturity investments. By contrast, a decline in such rates reduces
currently available yields but usually serves to increase the fair value of the
existing fixed maturity investment portfolio. All such changes in fair value are
reflected, net of deferred income taxes, directly in the shareholders' equity
account, and as a component of the separate statement of comprehensive income.
Given the Company's inability to forecast or control the movement of interest
rates, Old Republic sets the maturity spectrum of its fixed maturity securities
portfolio within parameters of estimated liability payouts, and focuses the
overall portfolio on high quality investments. By so doing, Old Republic
believes it is reasonably assured of its ability to hold securities to maturity
as it may deem necessary in changing environments, and of ultimately recovering
their aggregate cost.
Possible future declines in fair values for Old Republic's bond and stock
portfolios would affect negatively the common shareholders' equity account at
any point in time, but would not necessarily result in the recognition of
realized investment losses. The Company reviews the status and market value
changes of its securities portfolio on at least a quarterly basis during the
year, and estimates of other than temporary impairments in the portfolio's value
are evaluated and established at each quarterly balance sheet date. In reviewing
investments for other than temporary impairment, the Company, in addition to a
security's market price history, considers the totality of such factors as the
issuer's operating results, financial condition and liquidity, its ability to
access capital markets, credit rating trends, most current audit opinion,
industry and securities markets conditions, and analyst expectations to reach
its conclusions. Sudden market value declines caused by such adverse
developments as newly emerged or imminent bankruptcy filings, issuer default on
significant obligations, or reports of financial accounting developments that
bring into question the validity of previously reported earnings or financial
condition, are recognized as realized losses as soon as credible publicly
available information emerges to confirm such developments. Accordingly, the
recognition of losses from other-than-temporary value impairments is subject to
a great deal of judgement as well as turns of events over which the Company can
exercise little or no control. In the event the Company's estimate of other than
temporary impairments is insufficient at any point in time, future periods' net
income would be adversely affected by the recognition of additional realized or
impairment losses, but its financial position would not necessarily be affected
adversely inasmuch as such losses, or a portion of them, could have been
recognized previously as unrealized losses.
The following tables show certain information relating to the Company's fixed
maturity and equity portfolios as of the dates shown:
- -----------------------------------------------------------------------------------------------------------------------------------
Credit Quality Ratings of Fixed Maturity Securities (*)
- -----------------------------------------------------------------------------------------------------------------------------------
September 30, December 31,
2003 2002
-------------- --------------
Aaa................................................................................. 29.0% 30.9%
Aa.................................................................................. 20.4 24.3
A................................................................................... 31.1 31.4
Baa................................................................................. 17.8 10.8
-------------- --------------
Total investment grade......................................................... 98.3 97.4
All other (**)...................................................................... 1.7 2.6
-------------- --------------
Total.......................................................................... 100.0% 100.0%
============== ==============
(*) Credit quality ratings used are those assigned primarily by Moody's; other
ratings are assigned by Standard & Poor's and converted to equivalent
Moody's ratings classifications.
(**) "All other" includes non-investment or non-rated small issues of tax-exempt
bonds.
13
- ----------------------------------------------------------------------------------------------------------------------------------
Gross Unrealized Losses Stratified by Industry Concentration for Non-Investment Grade Fixed Maturity Securities
as of September 30, 2003
($ in Millions)
- ----------------------------------------------------------------------------------------------------------------------------------
Gross
Amortized Unrealized
Cost Losses
------------ ------------
Fixed Maturity Securities by Industry Concentration:
Technology............................................................................ $ 12.7 $ .8
Utilities............................................................................. 14.6 .2
Basic Industry........................................................................ 5.5 -
Industrials........................................................................... 1.0 -
Other ................................................................................ - -
------------ ------------
Total............................................................................ $ 34.0 (a) $ 1.2
============ ============
(a) Represents 0.6 percent of the total fixed maturity securities portfolio.
- ----------------------------------------------------------------------------------------------------------------------------------
Gross Unrealized Losses Stratified by Industry Concentration for Investment Grade Fixed Maturity Securities
as of September 30, 2003
($ in Millions)
- ----------------------------------------------------------------------------------------------------------------------------------
Gross
Amortized Unrealized
Cost Losses
------------ ------------
Fixed Maturity Securities by Industry Concentration:
Energy................................................................................ $ 52.6 $ 1.1
Municipals............................................................................ 46.9 .7
Utilities............................................................................. 31.8 .7
Industrials........................................................................... 31.4 1.3
Other ................................................................................ 140.5 2.7
------------ ------------
Total............................................................................ $ 303.3 (b) $ 6.7
============ ============
(b) Represents 5.7 percent of the total fixed maturity securities portfolio.
- ----------------------------------------------------------------------------------------------------------------------------------
Gross Unrealized Losses Stratified by Industry Concentration for Equity Securities
as of September 30, 2003
($ in Millions)
- ----------------------------------------------------------------------------------------------------------------------------------
Gross
Unrealized
Cost Losses
------------ ------------
Equity Securities by Industry Concentration:
Utilities............................................................................. $ 52.4 $ 12.6
Health care........................................................................... 43.1 10.0
Retail................................................................................ 21.5 5.2
Telecom............................................................................... 20.4 4.1
Other ................................................................................ 75.3 9.1
------------ ------------
Total............................................................................ $ 212.8 (c) $ 41.2 (d)
============ ============
(c) Represents 45.0 percent of the total equity securities portfolio.
(d) Represents 8.7% of the cost of the total equity securities portfolio, while
gross unrealized gains represent 13.8% of the portfolio.
14
- ----------------------------------------------------------------------------------------------------------------------------------
Gross Unrealized Losses Stratified For All Fixed Maturity Securities
as of September 30, 2003
($ in Millions)
- ----------------------------------------------------------------------------------------------------------------------------------
Amortized Cost
of Fixed Maturity Securities Gross Unrealized Losses
-------------------------------- -------------------------------
Non- Non-
Investment Investment
All Grade Only All Grade Only
------------- ------------- ------------ ------------
Maturity Ranges:
Due in one year or less............................ $ 6.8 $ 5.0 $ - $ -
Due after one year through five years.............. 117.7 20.6 3.2 .4
Due after five years through ten years............. 197.1 8.3 4.4 .7
Due after ten years................................ 15.6 - .2 -
------------- ------------- ------------ ------------
Total......................................... $ 337.4 (e) $ 34.0 $ 7.9 $ 1.2
============= ============= ============ ============
(e) Represents 6.3 percent of the total fixed maturity securities portfolio.
- ----------------------------------------------------------------------------------------------------------------------------------
Gross Unrealized Losses Stratified by Duration and Amount of Unrealized Losses
as of September 30, 2003
($ in Millions)
- ----------------------------------------------------------------------------------------------------------------------------------
Amount of Gross Unrealized Losses
-----------------------------------------------------------------------
Total Gross
Less than 20% to 50% More than Unrealized
20% of Cost of Cost 50% of Cost Loss
------------- ------------- ------------ ------------
Number of Months in Loss Position:
Fixed Maturity Securities:
One to six months.............................. $ 6.9 $ - $ - $ 6.9
Seven to twelve months......................... - - - -
More than twelve months........................ .9 - - .9
------------- ------------- ------------ ------------
Total....................................... $ 7.9 $ - $ - $ 7.9
============= ============= ============ ============
Equity Securities:
One to six months.............................. $ 5.2 $ - $ - $ 5.2
Seven to twelve months......................... 4.0 10.3 - 14.4
More than twelve months........................ 1.8 19.6 - 21.5
------------- ------------- ------------ ------------
Total....................................... $ 11.2 $ 29.9 $ - $ 41.2
============= ============= ============ ============
- ----------------------------------------------------------------------------------------------------------------------------------
Age Distribution of Fixed Maturity Securities
- ----------------------------------------------------------------------------------------------------------------------------------
September 30, December 31,
2003 2002
-------------- ---------------
Maturity Ranges:
Due in one year or less............................................................. 2.1% 13.4%
Due after one year through five years............................................... 52.9 55.9
Due after five years through ten years.............................................. 39.5 29.9
Due after ten years through fifteen years........................................... 5.5 0.8
Due after fifteen years............................................................. - -
-------------- ---------------
Total.......................................................................... 100.0% 100.0%
============== ===============
Average Maturity.................................................................... 4.3 Yrs. 3.9 Yrs.
============== ===============
Duration (f)........................................................................ 3.8 3.5
============== ===============
(f) Duration is used as a measure of bond price sensitivity to interest rate
changes. A duration of 3.8 as of September 30, 2003 implies that a 100 basis
point parallel increase in interest rates from current levels would result in a
possible decline in the market value of the long-term fixed maturity investment
portfolio of approximately 3.8%.
15
- ----------------------------------------------------------------------------------------------------------------------------------
Composition of Unrealized Gains (Losses)
($ in Millions)
- ----------------------------------------------------------------------------------------------------------------------------------
September 30, December 31,
2003 2002
--------------- --------------
On Fixed Maturity Securities:
Amortized cost...................................................................... $ 5,338.7 $ 5,043.6
Estimated fair value................................................................ 5,665.5 5,344.2
--------------- --------------
Gross unrealized gains.............................................................. 334.8 318.6
Gross unrealized losses............................................................. (7.9) (18.0)
--------------- --------------
Net unrealized gains .......................................................... $ 326.8 $ 300.5
=============== ==============
On Equity Securities:
Cost................................................................................ $ 473.4 $ 520.3
Estimated fair value................................................................ 497.5 513.5
--------------- --------------
Gross unrealized gains.............................................................. 65.3 63.1
Gross unrealized losses............................................................. (41.2) (69.9)
--------------- --------------
Net unrealized gains (losses).................................................. $ 24.0 $ (6.7)
=============== ==============
Among other major assets, substantially all of the Company's receivables are not
past due, and reinsurance recoverable balances on paid or estimated unpaid
losses are deemed recoverable from solvent reinsurers or reduced by allowances
for estimated amounts unrecoverable. Deferred policy acquisition costs are
estimated by taking into account the variable costs of producing specific types
of insurance policies, and evaluating their recoverability on the basis of
recent trends in claims costs. The Company's deferred policy acquisition cost
balances have not fluctuated substantially from period-to-period and do not
represent significant percentages of assets, shareholders' equity, or premium
reserves.
The parent holding company meets its liquidity and capital needs principally
through dividends paid by its subsidiaries. The insurance subsidiaries' ability
to pay cash dividends to the parent company is generally restricted by law or
subject to approval of the insurance regulatory authorities of the states in
which they are domiciled. The Company can receive up to $227.4 million in
dividends from its subsidiaries in 2003 without the prior approval of regulatory
authorities. The liquidity achievable through such permitted dividend payments
is more than adequate to cover the parent holding company's currently expected
cash outflows represented mostly by interest on outstanding debt and quarterly
cash dividend payments to shareholders. In addition, Old Republic can access the
commercial paper market for up to $150.0 million to meet unanticipated liquidity
needs.
Old Republic's capitalization of $3.71 billion at September 30, 2003 consisted
of debt of $139.0 million and common shareholders' equity of $3.57 billion. The
increase in the common shareholders' equity account during the first nine months
of 2003 reflects primarily the retention of earnings in excess of dividend
requirements and an increase in the value of investments carried at market
values. In May 2003, the Company canceled 1.2 million common shares previously
reported as treasury stock, and restored them to unissued status; this had no
effect on total shareholders' equity or the financial condition of the Company.
At its March, 2002 meeting, the Company's Board of Directors authorized the
reacquisition of up to $200.0 million of common shares as market conditions
warrant during the two year period from that date; no stock had as yet been
acquired through September 30, 2003 pursuant to this authorization.
RESULTS OF OPERATIONS
Revenues:
Pursuant to GAAP applicable to the insurance industry, revenues are associated
with the related benefits, claims, and expenses by means of the provision for
policy benefits, the deferral and subsequent amortization of applicable
acquisition costs, and the recognition of incurred benefits, claims and
operating expenses. Substantially all general insurance premiums are reflected
in income on a pro-rata basis. Earned but unbilled premiums are generally taken
into income on the billing date, while adjustments for retrospective premiums,
commissions and similar charges or credits are accrued on the basis of periodic
evaluations of current underwriting experience and contractual obligations.
Nearly all of the Company's mortgage guaranty premiums stem from monthly
installment policies. Accordingly, such premiums are fully earned in the month
they are reported and received. With respect to minor numbers of annual or
single premium policies, earned premiums are largely recognized on a pro-rata
basis over the terms of the policies.
Title premium and fee revenues stemming from the Company's direct operations
represent approximately 45% of such consolidated title business revenues. Such
premiums are generally recognized as income at the escrow closing date which
approximates the policy effective date. Fee income related to escrow and other
closing services is recognized when the related services have been performed and
completed.
16
The remaining 55% of consolidated title premium and fee revenues is produced by
independent title agents and other service providers. Rather than making
estimates that could be subject to significant variance from actual premium and
fee production, the Company recognizes revenues from those sources upon receipt.
Such receipts can reflect a three to four month lag relative to the effective
date of the underlying title policy, and are offset concurrently by production
expenses and claim reserve provisions.
Ordinary life insurance premiums are recognized as revenues when due, whereas
premiums for other coverages such as credit life, credit disability, and health
insurance are recognized as income on a pro-rata, sum of the years' digits, or
combination of such methods as are deemed most applicable in the circumstances.
The composition of Old Republic's earned premiums and fees for the periods
reported upon was as follows:
($ in Millions)
-----------------------------------------------------------------------------------------
Quarters Ended Nine Months Ended
September 30, September 30,
------------------------------------------ ------------------------------------------
% %
2003 2002 Change 2003 2002 Change
---------- ----------- ----------- ---------- ---------- ----------
General Insurance premiums............ $ 359.0 $ 303.4 18.3% $ 1,012.0 $ 858.5 17.9%
Mortgage Guaranty premiums............ 100.1 95.9 4.4 298.9 278.6 7.3
Title Insurance premiums and fees..... 308.4 209.2 47.4 809.3 574.1 41.0
Life & Health Insurance premiums...... 10.4 14.6 -28.6 38.6 39.3 -1.9
---------- ----------- ----------- ---------- ---------- ----------
Consolidated premiums and fees........ $ 778.1 $ 623.3 24.8% $ 2,158.9 $ 1,750.7 23.3%
========== =========== =========== ========== ========== ==========
In 2003, General insurance premium growth has resulted principally from the
positive pricing and risk selection changes the Company has effected during the
past four years, as well as additional business produced in an environment
marked by a more restrictive marketing stance on the part of many competitors.
Mortgage guaranty premium income trends reflect greater sales opportunities
arising from strong housing and mortgage lending markets, offset in part by a
high level of mortgage refinancing activity and a greater amount of reinsurance
and equivalent premium cessions. High loan refinancing activity tends to reduce
mortgage guaranty insurers' policies in force, and thus renewal premium
production, since previously insured mortgages may no longer require coverage or
may become insured by competitors. In both 2003 and 2002 periods, title
insurance premium and fee revenues reflect a continuation of favorable market
conditions for the sale of new and used homes, and most importantly, strong
mortgage refinancing activity driven by a fairly consistent drop in mortgage
rates during the recent past. Unlike mortgage guaranty insurers, title
companies' premium and fee revenues are enhanced by high levels of refinancing
activity since title searches must be updated and related closing services
provided. Premium volume trends in the Company's smallest segment of life and
health insurance primarily reflects increased sales of travel related products,
offset by lower term life premiums.
Consolidated net investment income of $69.1 million in the third quarter of 2003
and $208.6 million in the first nine months of the year was up slightly when
compared to $68.8 million and $203.7 million, respectively, in the same periods
of 2002. The benefits of the Company's growing invested asset base have been
offset largely by a lower yield environment and the relatively short maturity of
Old Republic's fixed maturity securities portfolio. The average annualized yield
on investments was 4.7% and 5.2% for the nine month periods ended September 30,
2003 and 2002, respectively.
The Company's investment policies have not been designed to maximize or
emphasize the realization of investment gains. Rather, these policies aim to
assure a stable source of income from interest and dividends, protect capital,
and provide sufficient liquidity to meet insurance underwriting and other
obligations as they become payable in the future. Dispositions of fixed maturity
securities arise mostly from scheduled maturities and early calls; for the first
nine months of 2003 and 2002, 78.0% and 74.0%, respectively, of all such
dispositions resulted from these occurrences. Dispositions of equity securities
at a realized gain or loss reflect such factors as ongoing assessments of
issuers' business prospects, rotation among industry sectors, and tax planning
considerations. Additionally, the amount of net realized gains and losses
registered in any one accounting period are affected by the aforementioned
assessments of securities' values for other than temporary impairment. As a
result of the interaction of all these factors and considerations, net realized
investment gains or losses can vary significantly from period-to-period, and, in
the Company's view, are not indicative of any particular trend or result in its
basic insurance underwriting business. The following table shows the makeup of
net realized gains or losses for the periods shown:
17
($ in Millions)
----------------------------------------------------------
Quarters Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
2003 2002 2003 2002
----------- ---------- ---------- ----------
Realized Gains (Losses) on Disposition of:
Fixed maturity securities..................................... $ 1.5 $ 1.4 $ 4.8 $ 2.8
Equity securities............................................. 10.4 (.9) 16.3 26.7
Miscellaneous investments..................................... (.4) - 5.8 .3
----------- ---------- ---------- ----------
Total...................................................... 11.5 .4 27.0 29.9
----------- ---------- ---------- ----------
Impairment losses on:
Fixed maturity securities..................................... - (2.9) - (7.5)
Equity securities............................................. (6.9) - (15.5) (9.0)
Miscellaneous investments..................................... - (.7) (.9) (2.4)
----------- ---------- ---------- ----------
Total...................................................... (6.9) (3.6) (16.4) (19.0)
----------- ---------- ---------- ----------
Net realized gains (losses)....................................... $ 4.5 $ (3.2) $ 10.5 $ 10.9
=========== ========== ========== ==========
Expenses:
The insurance business is distinguished from most others in that the prices
(premiums) charged for insurance coverages are set without clear knowledge of
the claim costs that will ultimately emerge and be incurred, often many years
after issuance of a policy. In order to achieve a necessary matching of revenues
and expenses, the Company records in each accounting period the benefits, claims
and related settlement costs that have been incurred during the period. Such
costs are affected by the adequacy of reserve estimates established for current
and prior years' claim occurrences. The establishment of claim reserves by the
Company's insurance subsidiaries is a reasonably complex and dynamic process
influenced by a large variety of factors. These factors include past experience
applicable to the anticipated costs of various types of claims, continually
evolving and changing legal theories emanating from the judicial system,
recurring accounting, statistical, and actuarial studies, the professional
experience and expertise of the Company's claim departments' personnel or
attorneys and independent claim adjusters, ongoing changes in claim frequency or
severity patterns such as those caused by natural disasters, illnesses,
accidents, work-related injuries, and changes in general and industry-specific
economic conditions. Consequently, the reserve-setting process relies on
management's judgements and the opinions of a large number of persons, on the
application and interpretation of historical precedent and trends, and on
expectations as to future developments. At any point in time, the Company is
exposed to possibly higher than anticipated claim costs due to all of these
factors, and to the evolution, interpretation, and expansion of tort law, as
well as the effects of unexpected jury verdicts.
All reserves are necessarily based on a large number of estimates which are
periodically reviewed and evaluated in the light of emerging claim experience
and changing circumstances. The resulting changes in estimates are recorded in
operations of the periods during which they are made. The Company believes that
its overall reserving practices have been consistently applied over many years.
For at least the past ten years, previously established reserves have produced
reasonable estimates of the ultimate net costs of claims incurred, and
consequently, have not resulted in cumulative deficiencies charged to operations
of subsequent periods. However, no representation is made that ultimate net
claim and related costs will not develop in future years to be greater or lower
than currently established reserve estimates.
In addition to the factors cited in the two preceding paragraphs, certain events
could impact adversely the Company's reserve adequacy and its future operating
results and financial condition. With respect to Old Republic's General
insurance business, such events or exposures would include catastrophic workers'
compensation claims caused by a terrorist attack or a natural disaster such as
an earthquake, legislated retroactive incurrence of previously denied or settled
claims, the levying of major guaranty fund assessments by various states based
on the costs of insurance company failures apportioned against remaining and
financially secure insurers, the future failure of one or more significant
assuming reinsurers that would void or reduce the Company's reinsurance
recoverable for losses paid or in reserve, and greater than expected involuntary
market assessments, such as those caused by forced participation in assigned
risk and similar state plans, all of which cannot be reasonably estimated prior
to their emergence.
Mortgage guaranty claim reserves could develop deficiently as a result of an
unexpected rise in unemployment which might hinder borrowers' ability to cure
mortgage payment defaults. Significant declines in home prices could also have
similarly adverse effects since salvage recoveries from the sale of properties
obtained through foreclosures could be reduced. Title segment loss reserve
levels could be impacted adversely by such developments as reduced loan
refinancing activity whose effect could be to lengthen the period during which
title policies remain exposed to loss emergence, or reductions in either
property values or the volume of transactions which, by virtue of the
speculative nature of some real estate developments, could lead to increased
occurrences of fraud, defalcations or mechanics' liens. As to Old Republic's
life and health segment, reserve adequacy may be affected adversely by greater
than anticipated medical care cost inflation as well as greater than expected
frequency and severity of claims.
In management's opinion, geographic concentrations of assureds' employees in the
path of an earthquake or acts of terrorism represent the most significant
catastrophic risks to Old Republic's General insurance segment. These risks
18
would largely impact the workers' compensation line since primary insurers such
as the Company must, by regulation, issue unlimited liability policies. While
Old Republic obtains a degree of protection through its reinsurance program as
to earthquake exposures, and until 2005, through the Terrorism Risk Insurance
Act of 2002, there is no assurance that recoveries thereunder would be
sufficient to offset the costs of a major calamity nor eliminate its possible
major impact on operating results and financial condition. Old Republic has
availed itself of modeling techniques to evaluate the possible magnitude of
earthquake or terrorist induced claim costs for its most exposed coverage of
workers' compensation. Such models, however, have not been sufficiently
validated by past occurrences, and rely on a large variety and number of
assumptions. As a result, they may not be predictive of possible claims from
future events. With respect to the Company's Mortgage Guaranty business, the
most significant risk lies in the possibility of prolonged economic dislocations
that would result in high unemployment levels and depressed property values
conspiring to magnify loan default rates and resulting claim costs. In Title
insurance, the Company's biggest exposure likely relates to defalcations and
fraud which can result in significant aggregations of claims or non-collection
of insurance premiums. In Life insurance, as in General insurance,
concentrations of insured lives coupled with a catastrophic event would
represent the Company's largest exposure. In all of these regards, current GAAP
accounting does not permit the Company's reserving practices to anticipate and
provide for these exposures before they occur.
Most of Old Republic's consolidated claim and related expense reserves stem from
its General insurance business. At September 30, 2003, such reserves accounted
for 88.4% and 82.0% of consolidated gross and net of reinsurance reserves,
respectively. The following table shows a breakdown of gross and net of
reinsurance claim reserve estimates for major types of insurance coverages:
($ in Millions)
--------------------------
Gross Net
---------- ----------
Claim and Loss Adjustment Expense Reserves:
Commercial automobile (mostly trucking).......................................................... $ 801.9 $ 643.8
Workers' compensation............................................................................ 1,418.5 745.0
General liability................................................................................ 720.4 267.9
Other coverages.................................................................................. 510.4 351.4
---------- ----------
Total general insurance segment reserves..................................................... 3,451.4 2,008.2
Mortgage guaranty................................................................................ 182.2 180.0
Title............................................................................................ 247.9 247.9
Life and health.................................................................................. 23.6 12.5
---------- ----------
Total claim and loss adjustment expense reserves............................................. $ 3,905.2 $ 2,448.7
========== ==========
Asbestosis and environmental claim reserves included
in the above general insurance reserves: Amount ........................................... $ 103.0 $ 58.4
========== ==========
% of total general insurance segment reserves..... 3.0% 2.9%
========== ==========
Old Republic's General insurance business is composed of a large variety of
lines or classes of commercial insurance; it has negligible exposure to personal
lines such as homeowners or private passenger automobile insurance that exhibit
wide diversification of risks, significant frequency of claim occurrences, and
high degrees of statistical credibility. Most of the General Insurance segment's
claim reserves stem from liability insurance coverages for commercial customers.
Liability claims typically require more extended periods of investigation and at
times protracted litigation before they are finally settled, and thus tend to
exhibit loss development and payment patterns that stretch over relatively long
periods of time.
The Company establishes point estimates for most reserves on an insurance
coverage line-by-line basis for individual subsidiaries, sub-classes, or
individual blocks of business that have similar attributes. Actuarially or
otherwise derived ranges of reserve levels are not utilized in setting such
reserves. Accordingly, the overall reserve level at any point in time represents
the compilation of a very large number of reported ("case") reserve estimates
and the results of a variety of formula calculations intended to cover claims
and related costs not as yet reported or emerged ("IBNR"). Case reserves are
based on continually evolving assessments of the facts available to the Company
during the claim settlement process. Long-term, disability-type workers'
compensation reserves are discounted to present value based on interest rates
ranging from 3.5% to 4.0%. Formula calculations are utilized and are intended to
cover IBNR claim costs as well as additional costs that can arise from such
factors as monetary and social inflation, changes in claims administration
processes, changes in reinsurance ceded levels, and expected trends in claim
costs and related ratios. Typically, such formulas take into account so-called
link ratios that represent prior years' patterns of incurred or paid loss trends
between succeeding years, or past experience relative to progressions of the
number of claims reported over time and ultimate average costs per claim.
Reserves pertaining to large individual commercial insurance accounts that
exhibit sufficient statistical credibility, and that may be subject to
retrospective premium rating plans or the utilization of varying levels or types
of self insured retentions are established on an account by account basis using
case reserves and applicable formula-driven methods. For certain so-called
long-tail categories of insurance such as excess liability or excess workers'
compensation, officers and directors' liability, and commercial umbrella
liability relative to which claim development patterns are particularly long,
more volatile, and immature in their early stages of development, the Company
judgmentally establishes the most current accident years' loss reserves on the
basis of expected loss ratios. As actual claims data emerges in succeeding
years, the original accident year loss ratio assumptions are validated or
otherwise adjusted sequentially through the application of actuarial projection
techniques such as the Bornhuetter/Ferguson method which utilizes data from the
more mature experience of prior years.
19
Except for a small portion that emanates from ongoing primary insurance
operations, a substantial majority of the asbestosis and environmental ("A&E")
claim reserves posted by Old Republic stem mainly from its participations in
assumed reinsurance treaties and insurance pools. Substantially all such
participations were discontinued fifteen or more years ago and have since been
in run-off status. With respect to the primary portion of gross A&E reserves,
Old Republic administers the related claims through its claims personnel as well
as outside attorneys, and posted reserves reflect its best estimates of ultimate
claim costs. Claims administration for the assumed portion of the Company's A&E
exposures is handled by the claims departments of unrelated primary or ceding
reinsurance companies. While the Company performs periodic reviews of a portion
of claim files so managed, the overall A&E reserves it establishes respond to
the paid claim and case reserve activity reported to the Company as well as
available industry statistical data such as so-called survival ratios. Such
ratios represent the number of years' average paid losses for the three or five
most recent calendar years that are encompassed by an insurer's A&E reserve
level at any point in time. According to this simplistic appraisal of an
insurer's A&E loss reserve level, Old Republic's average five year survival
ratios stood at 9.1 years (gross) and 14.9 years (net of reinsurance) as of
December 31, 2002.
Mortgage guaranty loss reserves are based on calculations that take into account
the number of reported insured mortgage loan defaults as of each balance sheet
date, as well as experience-based estimates of loan defaults that have occurred
but have not as yet been reported. Further, the resulting loss reserve estimates
take into account a large number of variables including trends in claim
severity, potential salvage recoveries, expected cure rates for reported loan
defaults at various stages of default, and judgements relative to future
employment levels, housing market activity, and mortgage loan demand and
extensions.
Title insurance and related escrow service loss and loss adjustment expense
reserves are established to cover the estimated settlement costs of known as
well as claims incurred but not reported, concurrently with the recognition of
premium and escrow service revenues. Reserves for known claims are based on an
assessment of the facts available to the Company during the settlement process.
Reserves for claims incurred but not reported are established on the basis of
past experience and evaluations of such variables as changes and trends in the
types of policies issued, changes in real estate markets and interest rate
environments, and changed levels of loan refinancings, all of which can have a
bearing on the emergence, number, and ultimate cost of claims.
Life and health insurance claim reserves also take into account estimates of the
costs of settling known as well as incurred but not reported claims. Such
estimates are based on an assessment of the facts available during the
settlement process and past experience as to the emergence and severity of
unreported claims.
In addition to the above reserve elements, the Company establishes reserves for
loss settlement costs that are not directly related to individual claims. Such
reserves are based on prior years' experience and are intended to cover the
unallocated costs of claim departments' administration of known and IBNR claims.
The percentage of net benefits, claims, and related settlement expenses measured
against premium and related fee revenues of the Company's operating segments
were as follows:
Quarters Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
2003 2002 2003 2002
----------- ---------- ---------- ----------
General........................................................... 67.1% 73.0% 68.4% 73.2%
Mortgage Guaranty................................................. 23.3 13.6 19.5 12.6
Title............................................................. 5.6 4.9 5.6 4.8
Life & Health..................................................... 62.8 64.9 50.0 58.5
Consolidated...................................................... 37.2% 40.6% 37.7% 40.5%
=========== ========== ========== ==========
The general insurance portion of the claims ratio continued to improve in the
first nine months of 2003. The positive loss trends are attributable to improved
pricing and risk selection standards effected in the past forty-five months,
reduced claim frequency and severity in most parts of Old Republic's general
insurance business, and the continued adequacy of prior years' aggregate claim
and related expense reserves which did not penalize current year results.
Increases in estimates for asbestosis, environmental and similar claims added 0
and 3.9 percentage points to the above incurred loss and loss expense ratios in
the third quarter of 2003 and 2002, respectively, and 0.4 and 2.0 percentage
points to those of the nine-month periods, respectively.
Rising levels of mortgage guaranty paid claim and loan default rates, though
partially offset by reduced estimates of claim reserve severity, led to an
uptrend in this segment's loss ratio in each quarter of 2003. The title
insurance loss ratio, while moderately higher in each period of 2003, remained
in the low single digits due to a continuation of favorable trends in claim
frequency and severity for business written during the past decade in
particular. The life and health claim ratio dropped somewhat in this year's
third quarter due to a significant increase in travel related premiums offset by
a decline in term life premiums that was coupled with a spike in term life
claims. This ratio can vary widely from period-to-period due to the relatively
small size of this segment's book of business and the material impact that even
a slight change in frequency or severity of death and health claims can have.
The consolidated benefit and claim ratio reflects the changing period-to-period
contributions of each segment to overall results.
20
The ratio of consolidated underwriting, acquisition and other operating expenses
to net premiums and fees earned was 48.8% and 46.7% in the third quarters of
2003 and 2002, respectively, and 48.1% and 47.0% for the first nine months of
2003 and 2002, respectively. Variations in these consolidated ratios reflect a
continually changing mix of coverages sold and attendant costs of producing
business by the Company's four business segments. The following table sets forth
the expense ratios registered by each business segment for the periods shown:
Quarters Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
2003 2002 2003 2002
----------- ---------- ---------- ----------
General........................................................... 25.8% 25.6% 25.2% 25.9%
Mortgage Guaranty................................................. 23.9 29.6 25.0 28.7
Title............................................................. 82.5 84.8 83.7 86.0
Life & Health..................................................... 62.2 37.7 56.9 42.2
Consolidated...................................................... 48.8% 46.7% 48.1% 47.0%
=========== ========== ========== ==========
Expense ratios for the Company as a whole have remained basically stable for the
periods reported upon. The 2003 general insurance expense ratios reflect the
benefits of firm expense management in the face of a greater revenue base. The
same factor affects the expense ratios for Old Republic's Mortgage Guaranty and
Title insurance segments in 2003 periods. Third quarter and nine months 2002
expense ratios for the mortgage guaranty segment were affected adversely by 5.0
percentage point and 1.7 percentage point increases, respectively, due to the
posting of certain non-recurring litigation costs. The expense ratio for the
life and health segment increased in both 2003 periods as a result of lower
premium levels in the Company's term life product area and higher expense levels
in travel related product areas. Consolidated interest and other corporate
charges decreased in both 2003 periods due primarily to reduced interest costs
on a slightly reduced debt level.
Pretax and Net Income:
Consolidated pretax operating income increased by 19.6% in the third quarter and
21.3% in the first nine months of 2003 when compared to the same periods one
year ago. The following table shows the components of pretax operating income
reconciled to consolidated net income:
($ in Millions)
-----------------------------------------------------------------------------------------
Quarters Ended Nine Months Ended
September 30, September 30,
------------------------------------------ ------------------------------------------
% %
2003 2002 Change 2003 2002 Change
---------- ----------- ----------- ---------- ---------- ----------
Pretax operating income (loss):
General............................. $ 64.8 $ 46.8 38.5% $ 186.7 $ 132.1 41.3%
Mortgage Guaranty................... 69.1 70.8 -2.4 214.9 212.7 1.0
Title............................... 43.0 26.9 59.8 105.2 68.4 53.8
Life & Health....................... (1.2) 1.3 -189.1 2.0 4.7 -56.9
Other............................... (2.4) (1.0) (8.2) (5.3)
---------- ----------- ----------- ---------- ---------- ----------
Consolidated pretax operating income... 173.3 144.9 19.6 500.7 412.7 21.3
Income taxes........................ 56.2 46.4 21.2 161.5 120.1 34.4
---------- ----------- ----------- ---------- ---------- ----------
Consolidated net operating income...... 116.9 98.3 18.9 339.0 292.3 16.0
---------- ----------- ----------- ---------- ---------- ----------
Pretax net realized gains (losses)..... 4.5 (3.2) 239.9 10.5 10.9 -3.0
Income taxes (credits).............. 1.6 (1.2) 3.7 3.8
---------- ----------- ----------- ---------- ---------- ----------
Post tax net realized gains (losses)... 2.9 (2.0) 246.3 6.8 7.1 -3.1
---------- ----------- ----------- ---------- ---------- ----------
Consolidated net income................ $ 119.9 $ 96.3 24.5% $ 345.8 $ 299.4 15.5%
========== =========== =========== ========== ========== ==========
General Insurance Group pretax operating earnings have improved meaningfully in
2003 by virtue of better underwriting experience. Mortgage Guaranty Group
earnings contributions have been affected mostly by higher claim costs driven by
increased loan default rates on the one hand, and a reduced expense ratio on the
other. Refinancing activity benefitted the Title Insurance Group and led to its
greater contributions to consolidated pretax operating earnings in the current
periods. Life and health earnings were mostly affected by the aforementioned
trends in the loss and expense ratios.
The effective consolidated income tax rate was 32.5% and 32.3% in the third
quarter and first nine months of 2003, respectively, and 31.9% and 29.3% for the
same periods of 2002, respectively. The effective tax rate was reduced and net
earnings were enhanced by tax and related interest recoveries of $10.9 million,
or 9 cents per share in the first nine months of 2002 from the favorable
resolution of tax issues dating back to the Company's 1987 tax return.
Otherwise, the rates for each period reflect primarily the varying proportions
of pretax operating income derived from partially tax-sheltered investment
income (principally tax-exempt interest) on the one hand, and the combination of
fully taxable investment income, realized investments gains or losses, and
underwriting and service income on the other hand.
21
OTHER INFORMATION
Reference is here made to "Information About Segments of Business" appearing
elsewhere herein.
Historical data pertaining to the operating performance, liquidity, and other
financial indicators applicable to an insurance enterprise such as Old Republic
are not necessarily indicative of results to be achieved in succeeding years. In
addition to the factors cited below, the long-term nature of the insurance
business, seasonal and annual patterns in premium production and incidence of
claims, changes in yields obtained on invested assets, changes in government
policies and free markets affecting inflation rates and general economic
conditions, and changes in legal precedents or the application of law affecting
the settlement of disputed claims can have a bearing on period-to-period
comparisons and future operating results.
Some of the statements made in this report, as well as oral statements or
commentaries made by the Company's management in conference calls following
earnings releases, can constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Any such
forward-looking statements, commentaries or inferences contained in this report,
of necessity, involve assumptions, uncertainties, and risks that may affect the
Company's future performance. With regard to Old Republic's General insurance
segment, its results can be affected in particular by the level of market
competition, which is typically a function of available capital and expected
returns on such capital among competitors, the levels of interest and inflation
rates, and periodic changes in claim frequency and severity patterns caused by
natural disasters, weather conditions, accidents, illnesses, work-related
injuries, and unanticipated external events. Mortgage Guaranty and Title
insurance results can be impacted by similar factors and most particularly by
changes in national and regional housing demand and values, the availability and
cost of mortgage loans, employment trends, and default rates on mortgage loans;
mortgage guaranty results may also be impacted by various risk-sharing
arrangements with business producers as well as the risk management and pricing
policies of government sponsored enterprises. Life and disability insurance
results can be affected by the levels of employment and consumer spending, as
well as mortality and health trends. At the parent company level, operating
earnings or losses are generally reflective of the amount of debt outstanding
and its cost, as well as interest income on temporary holdings of short-term
investments.
Any forward-looking statements or commentaries speak only as of their dates. Old
Republic undertakes no obligation to publicly update or revise all such
comments, whether as a result of new information, future events or otherwise,
and accordingly they may not be unduly relied upon.
22
OLD REPUBLIC INTERNATIONAL CORPORATION
- --------------------------------------------------------------------------------
Item 3 - Quantitative and Qualitative Disclosure About Market Risk
The information called for by Item 3 is found in the fourth and fifth unnumbered
paragraphs, as well as in the table entitled "Age Distribution of Fixed Maturity
Securities" under the heading "Financial Position" in the "Management Analysis
of Financial Position and Results of Operations" section of this report.
Item 4 - Controls and Procedures
Based on their review and evaluation, conducted as of the end of the period
covered by this report, the Company's Chief Executive Officer and Chief
Financial Officer are of the opinion that the Company's disclosure controls and
procedures are effective, and that there have been no significant changes in
internal controls or other factors that could significantly affect these
disclosure controls and procedures during the quarter. Disclosure controls and
procedures means such controls and procedures as are designed to ensure that
information required to be disclosed by the Company in its reports filed with
the Securities and Exchange Commission is accumulated and communicated to the
aforementioned executives to allow timely decisions regarding required
disclosure.
23
OLD REPUBLIC INTERNATIONAL CORPORATION
FORM 10 - Q
PART II - OTHER INFORMATION
- --------------------------------------------------------------------------------
Item 6 - Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
31.1 Certification by A. C. Zucaro, Chief Executive Officer, pursuant to
Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
31.2 Certification by John S. Adams, Chief Financial Officer, pursuant to
Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
32.1 Certification by A. C. Zucaro, Chief Executive Officer, pursuant to
Section 1350, Chapter 63 of Title 18, United States Code, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification by John S. Adams, Chief Financial Officer, pursuant to
Section 1350, Chapter 63 of Title 18, United States Code, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
1. On October 29, 2003, the Company furnished a Current Report on Form 8-K
to incorporate its earnings release dated October 28, 2003 announcing the
results of its operations and its financial condition for the quarter ended
September 30, 2003.
Items other than those listed are omitted because they are not required.
24
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Old Republic International Corporation
----------------------------------------
(Registrant)
Date: November 11, 2003
-------------------
/s/ John S. Adams
----------------------------------------
John S. Adams
Senior Vice President &
Chief Financial Officer
25
EXHIBIT INDEX
Exhibit
No. Description
- ------------ --------------
31.1 Certification by A. C. Zucaro, Chief Executive Officer, pursuant
to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification by John S. Adams, Chief Financial Officer, pursuant
to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification by A. C. Zucaro, Chief Executive Officer, pursuant
to Section 1350, Chapter 63 of Title 18, United States Code, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification by John S. Adams, Chief Financial Officer, pursuant
to Section 1350, Chapter 63 of Title 18, United States Code, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
26