NEWS BULLETIN
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Old Republic International Corporation
307 North Michigan Avenue, Chicago, IL 60601-5382 312/346-8100
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For Further Information:
AT OLD REPUBLIC: AT FRB | WEBER SHANDWICK:
Al Zucaro George Zagoudis
Chairman & CEO General Information
(312) 346-8100 (312) 640-6663
gzagoudis@webershandwick.com
AT FRB | WEBER SHANDWICK: AT FRB | WEBER SHANDWICK:
Leslie Loyet Tim Grace
Analysts/Investors Media Inquiries
(312) 640-6672 (312) 640-6667
lloyet@webershandwick.com tgrace@webershandwick.com
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FOR IMMEDIATE RELEASE ORI: NYSE
THURSDAY, JULY 24, 2003
OLD REPUBLIC'S SECOND QUARTER EARNINGS GROWTH DRIVEN BY
STRONG GAINS IN GENERAL AND TITLE INSURANCE
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Financial Highlights
(unaudited; amounts in millions except share data and
percentages; all per-share amounts are stated on a diluted basis)
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Quarters Ended June 30, Six Months Ended June 30,
---------------------------- --------------------------------
2003 2002 Change 2003 2002 Change
----------------------------------------------------------------------
<s> <c> <c> <c> <c> <c> <c>
Total Revenues $814.6 $657.9 23.8% $1,553.7 $1,297.0 19.8%
Net Operating Income(*) $113.2 $104.6 8.3% $ 222.0 $ 193.9 14.5%
Net Income(*) $121.5 $107.5 13.1% $ 225.9 $ 203.0 11.3%
Diluted Earnings Per Share:
Net Operating Income(*) $ 0.93 $ 0.86 8.1% $ 1.82 $ 1.60 13.8%
Net Income(*) $ 1.00 $ 0.88 13.6% $ 1.85 $ 1.67 10.8%
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Chicago-July 24, 2003-Old Republic International Corporation's (NYSE: ORI),
consolidated net operating income per share for this year's second quarter grew
by 8.1 percent compared to the same period of 2002. For the first half of 2003,
net operating earnings per share grew by 13.8 percent. Net earnings for the
second quarter and first half of 2002 were affected positively by tax recoveries
of $10.9 million, or 9 cents per share, stemming from the favorable resolution
of tax issues dating back to the Company's 1987 tax return. Absent this
non-recurring credit for 2002, second quarter and first half 2003 net operating
income per share would reflect growth rates of 20.8% and 20.5%, respectively.
Expense recognition of stock options granted in 2003 reduced earnings per share
by less than 1 cent per share in this year's second quarter and first half.
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Old Republic International Corporation
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Net Income and Net Operating Income
Net income for the second quarter of 2003 totaled $121.5 million, or $1.00 per
share, versus $107.5 million, or 88 cents per share, for the year-ago quarter.
Net operating income, which excludes realized investment gains or losses, was
$113.2 million, or 93 cents per share, compared to $104.6 million, or 86 cents
per share in the same quarter of 2002.
For this year's first half, net income was $225.9 million, or $1.85 per share,
versus $203.0 million, or $1.67 per share, for the first six months of 2002,
while net operating income was $222.0 million, or $1.82 per share in 2003,
compared to $193.9 million, or $1.60 per share in 2002.
(*) GAAP net income includes post tax net realized gains and losses, whereas net
operating income is exclusive of such items. Both figures are given to aid
investor analysis of Company results and to highlight the impact of certain
accounting rules or securities market-driven considerations that affect the
recording of investment gains or losses and can contribute to earnings
volatility and lessened period to period comparability. The realization of
investment gains or losses can be highly discretionary or arbitrary due to such
factors as the timing of individual securities sales, losses from write-downs of
impaired securities, tax-planning considerations, and investment management
judgments relative to the direction of securities markets or the future
prospects of individual issues or industry sectors. The recognition of losses
from write-downs of securities deemed other than temporarily impaired can be
caused by a variety of factors, including adverse securities market trends and
industry-wide or issuer-specific developments that can lead to a permanent loss
of market value or non-recoverability of asset value. Pretax realized gains of
$12.7 million in the second quarter of 2003 and $4.4 million in the same period
of 2002 include write-downs of zero and $6.2 million, respectively, of
investment securities deemed to have become other than temporarily impaired at
the end of each period. For the first half of the year, pretax net realized
gains amounted to $6.0 million in 2003 and $14.1 million in 2002, inclusive of
securities impairment write-downs of $9.5 million and $15.3 million,
respectively.
Consolidated Revenues
Consolidated operating revenues in this year's second quarter rose by 22.7
percent to $801.9 million, from $653.5 million in the same quarter of 2002. Net
premiums and fees were $717.2 million in the second quarter versus $575.6
million in the year-ago period, an increase of 24.6 percent. Consolidated net
investment income was $70.0 million for the second quarter of 2003, 3.4 percent
higher when compared to the same period of the preceding year.
For the first half of 2003, consolidated operating revenues were $1.54 billion
compared to $1.28 billion for the first six months of 2002. Net premiums and
fees for the first six months of 2003 were $1.38 billion compared to $1.12
billion in the same year-ago period. Consolidated net investment income for this
year's first half was $139.4 million, up by 3.4 percent.
While the Company's invested asset base has continued to grow as a result of
stronger operating cash flows, the substantial downtrend in interest rates in
the past two years has precluded corresponding growth in investment income.
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General Insurance Group
Old Republic's General Insurance Group, which underwrites mostly commercial
property and liability insurance coverages, generated a 38.2 percent increase
over 2002 in pretax operating income for this year's second quarter to $62.4
million. Net premiums earned in the second quarter of 2003 rose by 18.4 percent
to $339.1 million, from $286.3 million a year ago. The composite underwriting
ratio for this year's second quarter dropped to 93.4 percent from 98.7 percent
in the same quarter one year ago.
For the first six months of 2003, General Insurance pretax operating income
increased 42.8 percent, totaling $121.8 million compared to $85.3 million for
the first six months of 2002. Net premiums earned were $653.0 million versus
$555.1 million a year ago, and the composite underwriting ratio was 94.0 percent
versus 99.4 percent one year ago.
The improved underwriting performance in both periods of 2003 stemmed largely
from a lower claims ratio, though a greater increase in premium revenues than
production and operating expenses also led to a decline in the expense ratio.
Mortgage Guaranty Group
Comparative quarterly operating results of the Company's Mortgage Guaranty Group
reflected a slight downturn. Pretax operating income in the second quarter
declined to $69.8 million from $71.5 million in the year-ago quarter. Net
premiums earned in the quarter were $98.7 million, up 8.4 percent from $91.1
million in the year-ago quarter. The composite underwriting ratio in the second
quarter rose to 45.7 percent compared to 39.6 percent in the same quarter of
2002, due to higher claims costs.
For this year's first half, pretax mortgage guaranty operating income rose by
2.8 percent to $145.8 million compared to $141.9 million in the first six months
of 2002. Net premiums earned totaled $198.8 million, an increase of 8.8 percent
from $182.7 million earned in the first half of 2002. The composite underwriting
ratio was 43.1 percent compared to 40.3 percent one year earlier. This year's
higher underwriting ratio stemmed from higher claim provisions and benefited
from a lower production and operating expense component.
Title Insurance Group
Old Republic's Title Insurance Group continued to post higher than expected
pretax operating income. In the second quarter of 2003, pretax operating income
jumped 70.5 percent to $36.4 million. Premium and fee revenues rose by 41.9
percent to $267.2 million in this year's second quarter, while operating
expenses reflected a much lower increase of 35.7 percent. The claims ratio was
moderately higher quarter over quarter as was the case in this year's first
three months, while the expense ratio continued to trend down due to a
proportionately greater increase in this segment's operating revenues. The
composite ratio in the second quarter was 88.6 percent compared with 91.5
percent in the second quarter of 2002.
For the first half of the year, premium and fee revenues grew by 37.3 percent to
$500.8 million compared to $364.8 million in 2002. First half pretax operating
income was $62.2 million, up 49.9 percent from $41.5 million in the same period
last year. A composite ratio of 90.0 percent was posted for this year's first
half versus 91.5 percent in the same period of 2002.
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Old Republic International Corporation
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Life and Health Group
Old Republic's life and health insurance operations, which account for
approximately two percent of consolidated revenues, benefited mostly from lower
term life claims experience in the second quarter and first six months of this
year. Premium revenues were up in both periods of 2003 primarily due to higher
sales of travel related products.
Cash, Invested Assets and Shareholders' Equity
Cash and invested assets at June 30, 2003, totaled $6.65 billion, or $55.10 per
share, versus $6.16 billion, or $51.15 per share, at December 31, 2002, and
$5.77 billion, or $47.92 per share, at June 30, 2002. Consolidated operating
cash flow was positive at $135.6 million in the latest quarter and $332.0
million for the first half of 2003, compared to $100.0 million and $249.7
million in the respective periods of 2002.
Effective January 1, 2003, the Corporation elected to reclassify fixed maturity
securities formerly 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 32 percent of Old Republic's investment
portfolio. The decision was prompted by restrictive accounting rules applicable
to 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 June 30,
2003, the net impact of this reclassification on the Corporation's balance sheet
is to increase the carrying value of invested assets by $130.4 million, deferred
tax liabilities by $45.6 million, and shareholders' equity by $84.8 million, or
approximately 70 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, as a result, 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.
The investment portfolio reflects a current allocation of approximately 84
percent in fixed-income investments and 8 percent in equities. It contains
little or no exposure to real estate investments, mortgage-backed securities,
derivatives, junk bonds, private placements or mortgage loans.
Common shareholders' equity was $3.49 billion at June 30, 2003, versus $3.15
billion at December 31, 2002, and $2.97 billion at June 30, 2002. Book value per
share was $28.97 at the end of this year's second quarter, versus $26.17 at
year-end 2002, and $24.70 at June 30, 2002.
Conference Call Information
Old Republic has scheduled a conference call at 2:00 p.m. Central Time today to
discuss its second quarter 2003 performance and review ongoing trends. To access
this call, log on to www.oldrepublic.com 15 minutes before the call to download
the necessary software. Replays will be available through this website for 30
days.
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Old Republic International Corporation
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About Old Republic
Chicago-based Old Republic International Corporation is an insurance holding
company whose subsidiaries market, underwrite and provide risk management
services for a wide variety of coverages in the property and liability, mortgage
guaranty, title and life and health insurance fields. One of the nation's 50
largest publicly owned insurance organizations, Old Republic has assets of
approximately $9.36 billion and shareholders' equity of nearly $3.5 billion. Its
current stock market valuation is approximately $4.11 billion.
Safe Harbor Statement
Historical data pertaining to the operating performance, liquidity, and other
financial matters applicable to an insurance enterprise such as Old Republic are
not necessarily indicative of results to be achieved in succeeding years. In
addition to the factors cited below, the long-term nature of the insurance
business, seasonal and annual patterns in premium production and incidence of
claims, changes in yields obtained on invested assets, changes in government
policies and free markets affecting inflation rates and general economic
conditions, and changes in legal precedents or the application of law affecting
the settlement of disputed claims can have a bearing on period-to-period
comparisons and future operating results.
Some of the statements made in this News Release and Company published reports,
as well as oral statements or commentaries made by the Company's officials in
conference calls following earnings releases, can constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Any forward-looking statements, commentaries, or inferences therefrom
involve, of necessity, assumptions, uncertainties, and risks that may affect the
Company's future performance. With regard to Old Republic's General Insurance
segment, its results can be affected in particular by the level of market
competition, which is typically a function of available capital and expected
returns on such capital among competitors, the levels of interest and inflation
rates, 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 affected 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.
For the latest news releases and other corporate documents
on Old Republic International
visit: www.oldrepublic.com
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Financial Tables Follow ...
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Old Republic International Corporation
FINANCIAL HIGHLIGHTS
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Quarters Ended Six Months Ended
June 30, June 30,
--------------------------------- % --------------------------------- %
2003 2002 Change 2003 2002 Change
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<s> <c> <c> <c> <c> <c> <c>
NET INCOME:
Total $121,573,068 $107,517,961 13.1% $225,958,686 $203,072,681 11.3%
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Per Share: Basic $1.01 $0.89 13.5% $1.87 $1.69 10.7%
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Diluted $1.00 $0.88 13.6% $1.85 $1.67 10.8%
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Average number of common and
equivalent shares outstanding
Basic 120,806,189 120,456,722 120,803,205 120,431,510
=============== =============== =============== ===============
Diluted 121,951,315 121,727,917 121,693,477 121,557,490
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COMPOSITION OF EARNINGS PER SHARE:
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Basic Earnings:
Net income, before items below $0.94 $0.87 8.0% $1.84 $1.61 14.3%
Realized investment gains 0.07 0.02 0.03 0.08
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Net income $1.01 $0.89 13.5% $1.87 $1.69 10.7%
=============== =============== =============== ===============
Diluted Earnings:
Net income, before items below $0.93 $0.86 8.1% $1.82 $1.60 13.8%
Realized investment gains 0.07 0.02 0.03 0.07
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Net income $1.00 $0.88 13.6% $1.85 $1.67 10.8%
=============== =============== =============== ===============
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BOOK VALUE PER SHARE (End of periods)(a):
As Reported $28.97 $24.70 17.3%
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Cost Basis $26.79 $23.92 12.0%
=============== ===============
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FINANCIAL SUMMARY ($ in Millions) :
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Operating Revenues:
General $388.3 $335.1 15.9% $750.1 $651.5 15.1%
Mortgage Guaranty 124.5 112.2 11.0% 249.3 225.6 10.5%
Title 273.2 194.0 40.8% 512.8 376.3 36.3%
Life & Health 13.8 11.4 20.8% 31.5 28.0 12.5%
Other 1.9 0.6 3.7 1.2
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Consolidated Operating Revenues 801.9 653.5 22.7% 1,547.7 1,282.8 20.6%
Realized Investment Gains 12.7 4.4 6.0 14.1
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Total Revenues $814.6 $657.9 23.8% $1,553.7 $1,297.0 19.8%
=============== =============== =============== ===============
Pretax Operating Income (Loss):
General $62.4 $45.1 38.2% $121.8 $85.3 42.8%
Mortgage Guaranty 69.8 71.5 -2.3% 145.8 141.9 2.8%
Title 36.4 21.3 70.5% 62.2 41.5 49.9%
Life & Health 1.9 1.7 11.6% 3.2 3.3 -3.8%
Other (3.8) (2.4) (5.7) (4.3)
--------------- --------------- --------------- ---------------
Total 166.8 137.3 21.5% 327.4 267.7 22.3%
Realized Investment Gains 12.7 4.4 6.0 14.1
--------------- --------------- --------------- ---------------
Revenues, Net of Expenses 179.5 141.8 26.6% 333.4 281.9 18.3%
Income Taxes 57.9 34.2 69.1% 107.3 78.7 36.2%
--------------- --------------- --------------- ---------------
Net Income $121.5 $107.5 13.1% $225.9 $203.0 11.3%
=============== =============== =============== ===============
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(a) "As Reported" in financial statements with all securities carried at market
value at June 30, 2003, and partially so at June 30, 2002.
"Cost Basis" calculation includes all investment securities at their
currently amortized original cost.
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Old Republic International Corporation
SEGMENTED SUMMARY INFORMATION
($ in Millions)
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Net Pretax
Premiums Net Sales Operating Composite
& Fees Investment Other Operating Benefits & Other Total Income Underwriting
Segment Earned Income Income Revenues & Claims Expenses Expenses (Loss) Ratios
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<s> <c> <c> <c> <c> <c> <c> <c> <c> <c>
Quarter Ended June 30, 2003
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General $339.1 $44.2 $4.9 $388.3 $234.8 $91.0 $325.9 $62.4 93.4%
Mortgage 98.7 16.3 9.4 124.5 19.7 34.8 54.6 69.8 45.7%
Title 267.2 5.8 0.1 273.2 14.9 221.8 236.7 36.4 88.6%
Life 12.0 1.6 --- 13.8 4.8 7.0 11.8 1.9 97.5%
Other --- 1.9 --- 1.9 --- 5.8 5.8 (3.8) ---
---------------------------------------------------------------------------------------------------------- -----------
Consolidated $717.2 $70.0 $14.6 $801.9 $274.3 $360.7 $635.0 $166.8 85.7%
========================================================================================================== ===========
Quarter Ended June 30, 2002
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General $286.3 $43.4 $5.2 $335.1 $205.0 $84.9 $290.0 $45.1 98.7%
Mortgage 91.1 16.5 4.5 112.2 10.6 30.0 40.7 71.5 39.6%
Title 188.3 5.6 0.1 194.0 9.1 163.5 172.6 21.3 91.5%
Life 9.8 1.5 --- 11.4 5.4 4.2 9.6 1.7 97.9%
Other --- 0.6 --- 0.6 --- 3.0 3.0 (2.4) ---
---------------------------------------------------------------------------------------------------------- -----------
Consolidated $575.6 $67.7 $10.0 $653.5 $230.3 $285.8 $516.1 $137.3 87.2%
========================================================================================================== ===========
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Six Months Ended June 30, 2003
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General $653.0 $87.9 $9.2 $750.1 $448.3 $179.9 $628.2 $121.8 94.0%
Mortgage 198.8 32.8 17.7 249.3 35.0 68.4 103.5 145.8 43.1%
Title 500.8 11.6 0.2 512.8 27.8 422.7 450.6 62.2 90.0%
Life 28.1 3.3 0.1 31.5 12.7 15.6 28.3 3.2 100.2%
Other --- 3.7 --- 3.7 --- 9.5 9.5 (5.7) ---
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Consolidated $1,380.8 $139.4 $27.4 $1,547.7 $523.9 $696.3 $1,220.3 $327.4 85.6%
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Six Months Ended June 30, 2002
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General $555.1 $86.2 $10.2 $651.5 $402.2 $164.0 $566.2 $85.3 99.4%
Mortgage 182.7 32.8 10.0 225.6 22.0 61.7 83.7 141.9 40.3%
Title 364.8 11.1 0.3 376.3 17.4 317.3 334.8 41.5 91.5%
Life 24.6 3.2 0.1 28.0 13.5 11.1 24.6 3.3 99.7%
Other --- 1.2 --- 1.2 --- 5.5 5.5 (4.3) ---
---------------------------------------------------------------------------------------------------------- -----------
Consolidated $1,127.3 $134.8 $20.6 $1,282.8 $455.2 $559.8 $1,015.0 $267.7 87.5%
========================================================================================================== ===========
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Fiscal Year Ended June 30, 2003
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General $1,282.0 $174.2 $18.9 $1,475.2 $898.2 $358.2 $1,256.5 $218.7 95.9%
Mortgage 392.3 65.7 32.6 490.8 65.9 153.2 219.1 271.6 47.5%
Title 949.4 23.0 0.5 973.0 51.1 803.4 854.5 118.5 90.0%
Life 53.5 6.7 0.2 60.5 28.2 25.9 54.2 6.3 100.8%
Other --- 7.5 --- 7.5 --- 16.2 16.2 (8.6) ---
---------------------------------------------------------------------------------------------------------- -----------
Consolidated $2,677.4 $277.3 $52.5 $3,007.3 $1,043.5 $1,357.1 $2,400.7 $606.6 87.1%
========================================================================================================== ===========
Fiscal Year Ended June 30, 2002
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General $1,078.9 $172.8 $19.6 $1,271.4 $796.3 $319.9 $1,116.3 $155.1 100.5%
Mortgage 360.9 65.0 21.5 447.5 48.4 122.5 170.9 276.6 41.4%
Title 708.1 22.6 0.7 731.4 31.4 615.2 646.7 84.6 90.9%
Life 50.1 6.9 0.1 57.2 29.6 22.0 51.7 5.5 102.5%
Other --- 5.0 --- 5.0 --- 11.9 11.9 (6.8) ---
---------------------------------------------------------------------------------------------------------- -----------
Consolidated $2,198.1 $272.5 $42.1 $2,512.8 $905.9 $1,091.7 $1,997.6 $515.2 88.0%
========================================================================================================== ===========
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Old Republic International Corporation
OPERATING STATISTICS
($ in Millions)
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Quarters Ended Six Months Ended
June 30, June 30,
--------------------------------- ---------------------------------
2003 2002 2003 2002
--------------------------------- ---------------------------------
<s> <c> <c> <c> <c>
General Insurance Group:
Benefits and claims ratio 69.2% 72.2% 69.1% 73.3%
Expense ratio 24.2% 26.5% 24.9% 26.1%
--------------- --------------- --------------- ---------------
Composite ratio 93.4% 98.7% 94.0% 99.4%
=============== =============== =============== ===============
Paid loss ratio 53.2% 67.1% 54.0% 65.9%
=============== =============== =============== ===============
Mortgage Guaranty Group:
New insurance written: Traditional Primary $9,567.8 $7,277.7 $18,382.2 $14,274.4
Bulk 1,381.8 1,232.1 3,103.8 2,509.9
Other 2,214.7 4,080.0 3,396.2 4,267.0
--------------- --------------- --------------- ---------------
Total $13,164.3 $12,589.8 $24,882.2 $21,051.3
=============== =============== =============== ===============
Net risk in force: Traditional Primary $15,092.1 $15,151.1
Bulk 651.9 351.2
Other 479.1 403.0
--------------- ---------------
Total $16,223.1 $15,905.3
=============== ===============
Direct earned premiums $115.8 $104.1 $231.1 $207.8
=============== =============== =============== ===============
Net earned premiums $98.7 $91.1 $198.8 $182.7
=============== =============== =============== ===============
Persistency: Traditional Primary 48.7% 62.5%
=============== ===============
Delinquency ratio: Traditional Primary 3.5% 2.7%
=============== ===============
Bulk 4.3% 2.1%
=============== ===============
Claims ratio 20.0% 11.6% 17.6% 12.1%
Expense ratio 25.7% 28.0% 25.5% 28.2%
--------------- --------------- --------------- ---------------
Composite ratio 45.7% 39.6% 43.1% 40.3%
=============== =============== =============== ===============
Paid loss ratio 20.5% 16.3% 18.5% 15.2%
=============== =============== =============== ===============
Title Insurance Group:
Direct orders opened 161,119 93,828 302,474 186,244
=============== =============== =============== ===============
Direct orders closed 122,071 77,770 230,801 163,344
=============== =============== =============== ===============
Claims ratio 5.6% 4.9% 5.6% 4.8%
Expense ratio 83.0% 86.6% 84.4% 86.7%
--------------- --------------- --------------- ---------------
Composite ratio 88.6% 91.5% 90.0% 91.5%
=============== =============== =============== ===============
Paid loss ratio 2.8% 3.0% 2.6% 3.8%
=============== =============== =============== ===============
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