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 FINANCIAL RELATIONS BOARD:
A.C. Zucaro George Zagoudis
Chairman & CEO General Information
(312) 346-8100 (312) 640-6663
gzagoudis@financialrelationsboard.com
AT FINANCIAL RELATIONS BOARD: AT FINANCIAL RELATIONS BOARD:
Leslie Loyet Tim Grace
Analysts/Investors Media Inquiries
(312) 640-6672 (312) 640-6667
lloyet@financialrelationsboard.com tgrace@financialrelationsboard.com
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FOR IMMEDIATE RELEASE NYSE: ORI
TUESDAY, APRIL 27, 2004
OLD REPUBLIC REPORTS MODERATELY LOWER
NET OPERATING INCOME, BUT SLIGHTLY HIGHER NET INCOME
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Financial Highlights
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(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 March 31,
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2004 2003 Change
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Total Revenues $ 822.4 $ 739.0 11.3%
Net Operating Income $ 96.6 $ 108.7 -11.1%
Net Income $ 106.4 $ 104.3 1.9%
Diluted Earnings Per Share (*):
Net Operating Income $ 0.52 $ 0.60 -13.3%
Net Income $ 0.57 $ 0.57 --%
(*) March 31, 2003 per share data reflect retroactive adjustments for the 50%
stock dividend issued in December 2003.
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Chicago - April 27, 2004 - Old Republic International Corporation (NYSE: ORI),
today announced that net operating earnings dropped moderately in this year's
first quarter. The shortfall stemmed largely from the anticipated weakening of
the Company's Mortgage and Title insurance segments. Old Republic's General
Insurance business, however, continued to produce strong underwriting results
that largely offset the lower contributions from the two other segments. Pretax
earnings in this year's first quarter were also affected adversely by required
stock option compensation charges of $6.4 million, (or 2 cents per share after
tax), of which $5.6 million represented the expense of a non-recurring vesting
acceleration of stock option costs. First quarter 2003 operating results were
not burdened by any charges related to the expensing of stock option awards.
Old Republic International
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In reflection of the aforementioned factors, Old Republic's consolidated net
operating earnings before net realized investment gains or losses, amounted to
$96.6 million, or 52 cents per share, for the first quarter of 2004, down from
$108.7 million, or 60 cents per share in the same period of 2003. Inclusive of
net realized investment gains or losses, net income for this year's first
quarter amounted to $106.4 million, or 57 cents per share, versus $104.3
million, or 57 cents per share in the year-ago period.
To aid investment analysis of Company results, both net operating income and net
income figures are given as they highlight the impact of certain accounting
rules or securities market-driven considerations that affect the recording of
investment gains or losses and contribute to lessened period-to-period
comparability. The realization of investment gains or losses can be highly
discretionary and arbitrary due to such factors as the timing of individual
securities sales, losses from write-downs of impaired securities, tax-planning
considerations, and changes in investment management judgments relative to the
direction of securities markets or the future prospects of individual investees
or industry sectors. Write-downs of securities deemed other than temporarily
impaired are in turn caused by a variety of factors, including adverse
securities' market trends and industry-wide or issuer-specific developments that
can lead to the recognition of a permanent loss of market value or
non-recoverability of asset cost.
The major components of pretax operating income cited herein, and resulting
consolidated GAAP net income were as follows:
($ in Millions)
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Quarters Ended
March 31,
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2004 2003 % Change
-------- -------- --------
Pretax operating income (loss):
General $ 74.3 $ 59.4 25.1%
Mortgage Guaranty 57.4 75.9 -24.3
Title 13.2 25.7 -48.5
Corporate and other (2.5) (0.6)
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Sub-total 142.5 160.5 -11.2
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Realized investment gains (losses):
From sales 15.6 2.8
From impairments - (9.5)
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Sub-total 15.6 (6.7)
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Consolidated pretax income 158.2 153.8 2.8
Income taxes 51.7 49.4 4.7
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Net income $ 106.4 $ 104.3 1.9%
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Consolidated Revenues
Consolidated revenues in the first quarter totaled $822.4 million, up 11.3
percent from $739.0 million in the same period of 2003. Net premiums and fees
earned were $726.6 million in this year's first quarter versus $663.6 million in
the year-ago period. Consolidated net investment income of $70.5 million for the
first three months of 2004 was up slightly when compared to the preceding year
due to a continuing low yield environment, which diluted the benefit of the
Company's growing invested asset base.
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General Insurance Group
Old Republic's General Insurance Group, which underwrites principally commercial
property and liability insurance coverages, reported a 25.1 percent increase in
pretax operating income to $74.3 million for this year's first quarter. This
compares to $59.4 million earned during the same period of 2003. Net premiums
earned in this year's first quarter were $376.5 million, up 20.0 percent from
$313.9 million a year ago. The composite underwriting ratio for the first three
months of 2004 reflected a slight decline to 93.0 percent when compared to 94.8
percent posted in the first quarter of 2003, and 93.3 percent for all of 2003.
The positive underwriting results are attributable to the steadily improved
pricing and risk selection standards that have been applied since 2001, the
reduced loss frequency and severity and the well-controlled expenses for
substantially all of the Company's general insurance coverages.
Mortgage Guaranty Group
Old Republic's mortgage guaranty operations posted a 24.3 percent drop in pretax
operating earnings to $57.4 million in this year's first quarter. Net premium
revenues in the most recent quarter were $98.7 million, or just 1.3 percent
below the year-ago level of $100.0 million. Persistency for the traditional
primary book of business improved for the second consecutive quarter, rising to
50.2 percent.
The composite underwriting ratio in the first three months of 2004 was 58.6
percent compared to 40.5 percent posted in the same quarter of 2003, and 56.1
percent in last year's final quarter. Traditional primary business claim
severity, measured in terms of average claim reserves and payments, remained
relatively stable in this year's first quarter, as did claim frequency. The loss
ratio of 29.5 percent, while significantly higher than the 15.2 percent loss
ratio posted in the first three months of 2003, was moderately lower than the
32.0 percent posted in last year's final quarter. More than half of the quarter
over quarter increase in the expense ratio reflected the aforementioned stock
option costs incurred by this segment.
Title Insurance Group
Old Republic's title insurance business reflected mixed results in the key
components of its pretax bottom line which dropped by 48.5 percent in this
year's first quarter. Premiums were up 9.3 percent quarter-over-quarter,
benefiting from the reporting lag associated with November and December 2003
production from independent agency sources. On the other hand, escrow and other
fee revenues from current direct operations dropped 17.4 percent. In total,
premium and fee revenues were basically flat at $234.1 million in this year's
first quarter. Claim costs, which are associated principally with premium
revenues, were stable for both quarterly periods, while other costs, inclusive
of commissions paid on agency-derived premium production, rose by 6.2 percent
year over year. In combination, these factors produced a higher composite ratio
of 97.0 percent in this year's first quarter, compared to 91.5 percent and 93.7
percent in the first and final quarters of 2003, respectively. While net
investment income grew by 7.3 percent in the first three months of 2004, the
gain was not sufficient to offset the downward bias of the Company's results
from its basic underwriting/service functions.
Corporate and Other Operations
Old Republic's small life and health business, and the corporate service
operations of the parent holding company produced combined pretax losses of $2.5
million and $0.6 million in the first quarters of 2004 and 2003, respectively.
Lower life and health income was largely caused by greater life insurance claim
costs, while corporate operations were affected negatively by the aforementioned
recognition of allocated stock option costs as well as higher employee benefit
expenses.
Old Republic International Corporation
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Cash, Invested Assets and Shareholders' Equity
Cash and invested assets at March 31, 2004, totaled $7.08 billion, or $38.92 per
share, compared to $6.84 billion, or $37.71 per share, at December 31, 2003, and
$6.40 billion, or $35.42 per share, at March 31, 2003. The investment portfolio
reflects a current allocation of approximately 86 percent in fixed-maturity
securities and 7 percent in equities. As in the past, it contains little or no
exposure to real estate investments, mortgage-backed securities, derivatives,
junk bonds, private placements or mortgage loans. Consolidated operating cash
flow continued to be positive in the latest quarter, growing by 19.5 percent to
$234.6 million.
Common shareholders' equity was $3.66 billion at March 31, 2004, compared to
$3.55 billion at December 31, 2003, and $3.30 billion at March 31, 2003. Book
value per share was $20.16 at the end of March 2004, versus $19.57 at year-end
2003 and $18.26 at March 31, 2003. The latest quarter's change in book value
reflects principally the retention of earnings in excess of dividend
requirements, and an increase in the value of investment securities carried at
market values.
Conference Call Information
Old Republic has scheduled a conference call at 2:00 p.m. Central Daylight
Savings Time today to discuss its first quarter 2004 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.
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 $9.95 billion and capitalization of $3.80 billion. Its current
stock market valuation is approximately $4.42 billion.
Safe Harbor Statement
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 News Release and Company published reports,
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, 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
Old Republic International Corporation
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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;
additionally, 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 earnings can be affected by the levels of employment and consumer
spending, variations in mortality and health trends, and changes in policy
lapsation rates. At the parent company level, operating earnings or losses are
generally reflective of the amount of debt outstanding and its cost, interest
income on temporary holdings of short-term investments, and period-to-period
variations in the costs of administering the Company's widespread operations.
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
visit: www.oldrepublic.com
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Financial Tables Follow....
Old Republic International Corporation
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Old Republic International Corporation
FINANCIAL HIGHLIGHTS (*)
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Quarters Ended
March 31,
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2004 2003 Change
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<s> <c> <c>
NET INCOME:
Total $106,413,317 $104,385,618 1.9%
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Per Share: Basic $0.58 $0.57 1.8%
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Diluted $0.57 $0.57 -%
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Average number of common and
equivalent shares outstanding
Basic 181,962,757 180,932,204
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Diluted 184,504,465 181,985,790
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COMPOSITION OF EARNINGS PER SHARE:
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Basic Earnings:
Net income, before items below $0.53 $0.60 -11.7%
Realized investment gains (losses) 0.05 (0.03)
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Net income $0.58 $0.57 1.8%
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Diluted Earnings:
Net income, before items below $0.52 $0.60 -13.3%
Realized investment gains (losses) 0.05 (0.03)
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Net income $0.57 $0.57 -%
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BOOK VALUE PER SHARE (End of periods)(a):
As Reported $20.16 $18.26 10.4%
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Cost Basis $18.78 $17.26 8.8%
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FINANCIAL SUMMARY ($ in Millions) :
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Operating Revenues:
General $425.4 $361.8 17.6%
Mortgage Guaranty 120.2 124.8 -3.7%
Title 240.7 239.6 0.5%
Life & Health 18.8 17.7 6.1%
Other 1.6 1.7
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Consolidated Operating Revenues 806.8 745.8 8.2%
Realized Investment Gains (Losses) 15.6 (6.7)
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Total Revenues $822.4 $739.0 11.3%
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Pretax Operating Income (Loss):
General $74.3 $59.4 25.1%
Mortgage Guaranty 57.4 75.9 -24.3%
Title 13.2 25.7 -48.5%
Life & Health 0.9 1.3 -27.3%
Other (3.4) (1.9)
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Total 142.5 160.5 -11.2%
Realized Investment Gains (Losses) 15.6 (6.7)
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Revenues, Net of Expenses 158.2 153.8 2.8%
Income Taxes 51.7 49.4 4.7%
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Net Income $106.4 $104.3 1.9%
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(*) March 31, 2003 per share data reflect adjustments for the 50% stock
dividend issued in December 2003.
(a) "As Reported" in financial statements with all securities carried at market
value. "Cost Basis" calculation includes all investment securities at their
currently amortized original cost.
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Old Republic International Corporation
SEGMENTED OPERATING SUMMARY
($ 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
------------ ------------ ----------- ---------- ----------- ------------ ----------- ------------ ----------- ------------
<s> <c> <c> <c> <c> <c> <c> <c> <c> <c>
Quarter Ended March 31, 2004
- ----------------------------
General $376.5 $44.4 $4.3 $425.4 $249.2 $101.8 $351.0 $74.3 93.0%
Mortgage 98.7 16.6 4.8 120.2 29.1 33.5 62.7 57.4 58.6%
Title 234.1 6.2 0.2 240.7 13.9 213.4 227.4 13.2 97.0%
Life 17.1 1.5 0.1 18.8 9.7 8.1 17.9 0.9 103.5%
Other --- 1.5 --- 1.6 --- 5.1 5.1 (3.4) ---
-------------------------------------------------------------------------------------------------------- ------------
Consolidated $726.6 $70.5 $9.6 $806.8 $302.1 $362.0 $664.2 $142.5 89.3%
======================================================================================================== ============
Quarter Ended March 31, 2003
- ----------------------------
General $313.9 $43.6 $4.2 $361.8 $213.5 $88.8 $302.3 $59.4 94.8%
Mortgage 100.0 16.4 8.3 124.8 15.2 33.6 48.8 75.9 40.5%
Title 233.6 5.8 0.1 239.6 12.9 200.9 213.8 25.7 91.5%
Life 16.0 1.6 --- 17.7 7.8 8.5 16.4 1.3 102.2%
Other --- 1.7 --- 1.7 --- 3.6 3.6 (1.9) ---
-------------------------------------------------------------------------------------------------------- ------------
Consolidated $663.6 $69.4 $12.7 $745.8 $249.5 $335.6 $585.2 $160.5 85.7%
======================================================================================================== ============
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Fiscal Twelve Months Ended March 31, 2004
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General $1,442.2 $175.8 $18.3 $1,636.3 $968.6 $393.7 $1,362.4 $273.9 92.9%
Mortgage 399.6 65.8 28.5 494.0 104.7 131.3 236.0 257.9 51.9%
Title 1,104.4 24.0 0.6 1,129.1 64.8 946.9 1,011.7 117.3 91.6%
Life 52.7 6.2 0.5 59.5 27.0 28.4 55.5 3.9 104.4%
Other --- 8.3 --- 8.4 --- 18.8 18.8 (10.4) ---
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Consolidated $2,999.0 $280.3 $48.1 $3,327.5 $1,165.3 $1,519.3 $2,684.7 $642.8 87.3%
======================================================================================================== ============
Fiscal Twelve Months Ended March 31, 2003
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General $1,229.3 $173.4 $19.3 $1,422.1 $868.4 $352.1 $1,220.6 $201.4 97.2%
Mortgage 384.7 65.9 27.8 478.5 56.7 148.4 205.1 273.3 46.1%
Title 870.5 22.8 0.5 893.9 45.3 745.1 790.4 103.4 90.7%
Life 51.3 6.6 0.2 58.2 28.9 23.1 52.0 6.1 101.0%
Other --- 6.1 --- 6.2 --- 13.3 13.3 (7.1) ---
-------------------------------------------------------------------------------------------------------- ------------
Consolidated $2,535.9 $275.0 $48.0 $2,858.9 $999.5 $1,282.2 $2,281.8 $577.1 87.5%
======================================================================================================== ============
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Old Republic International Corporation
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Old Republic International Corporation
SEGMENTED OPERATING STATISTICS
($ in Millions)
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Quarters Ended
March 31,
--------------------------------
2004 2003
--------------------------------
<s> <c> <c>
General Insurance:
Benefits and claims ratio 67.0% 69.2%
Expense ratio 26.0% 25.6%
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Composite ratio 93.0% 94.8%
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Paid loss ratio 51.0% 54.9%
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Mortgage Guaranty:
New insurance written: Traditional Primary $5,899.5 $8,814.4
Bulk 41.1 1,722.0
Other 1,165.0 1,181.5
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Total $7,105.7 $11,717.9
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Net risk in force: Traditional Primary $15,289.7 $15,116.8
Bulk 783.3 624.1
Other 509.2 421.4
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Total $16,582.2 $16,162.3
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Earned premiums: Direct $118.5 $115.3
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Net $98.7 $100.0
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Persistency/Traditional Primary 50.2% 55.0%
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Delinquency ratio: Traditional Primary 3.67% 3.35%
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Bulk 5.62% 3.18%
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Claims ratio 29.5% 15.2%
Expense ratio 29.1% 25.3%
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Composite ratio 58.6% 40.5%
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Paid loss ratio 24.7% 16.5%
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Title Insurance:
Direct orders opened 112,072 145,154
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Direct orders closed 82,579 112,416
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Claims ratio 6.0% 5.5%
Expense ratio 91.0% 86.0%
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Composite ratio 97.0% 91.5%
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Paid loss ratio 4.4% 2.4%
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