Old Republic Reports First Quarter 2006 Results Led By a 4.3 Percent Increase in Net Operating Income Per Share

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April 27, 2006 at 9:03 AM EDT

Old Republic Reports First Quarter 2006 Results Led By a 4.3 Percent Increase in Net Operating Income Per Share

    CHICAGO, April 27 /PRNewswire-FirstCall/ --

                             Financial Highlights

    (unaudited; amounts in millions except per share data and percentages;
  all per share amounts are shown on a diluted basis and have been restated
   retroactively to reflect the 25% stock dividend issued in December 2005)

                                              Quarters Ended March 31,
                                      2006            2005          Change
    Total Revenues                   $942.9          $880.2          7.1%
    Net Operating Income             $112.5          $109.1          3.1%
    Net Income                       $117.4          $114.3          2.7%
    Diluted Earnings Per Share:
     Net Operating Income             $0.49           $0.47          4.3%
     Net Income                       $0.51           $0.49          4.1%

Old Republic International Corporation (NYSE: ORI), today announced that net operating earnings were slightly higher in this year's first quarter. Earnings for the latest quarter benefited from continued strength in general insurance operations, but were impacted adversely by a cyclical downturn in title insurance profitability and lower mortgage guaranty underwriting margins.

As shown in the above table, Old Republic's consolidated net operating earnings, which exclude net realized investment gains, amounted to $112.5 million, or 49 cents per share, for the first quarter of 2006, compared to $109.1 million, or 47 cents per share in the same period of 2005. Inclusive of net realized investment gains, net income for this year's first quarter amounted to $117.4 million, or 51 cents per share, versus $114.3 million, or 49 cents per share in the year-ago period.

Consolidated Results

The major components of Old Republic's consolidated operating revenues and income were as follows for the first three months of 2006 and 2005:

                                      ($ in millions, except share data)
                                           Quarters Ended March 31,
                                      2006            2005          Change
    Operating revenues:
     General insurance              $ 516.9         $ 482.5          7.1%
     Mortgage guaranty                131.2           127.0           3.3
     Title insurance                  260.3           238.4           9.2
     Corporate and other               26.8            24.2
      Total                         $ 935.3         $ 872.2          7.2%
    Pretax operating income (loss):
     General insurance                $97.0           $84.8         14.3%
     Mortgage guaranty                 60.1            64.6          -7.0
     Title insurance                    7.6            12.8         -40.6
     Corporate and other                (.3)           (1.7)
      Sub total                       164.4           160.5           2.4
    Realized investment gains (losses):
     From sales                         7.5            13.0
     From impairments                     -            (5.1)
      Net realized gains                7.5             7.9
    Consolidated pretax income        171.9           168.5           2.0
     Income taxes                      54.5            54.2            .6
    Net income                      $ 117.4         $ 114.3           2.7%
    Consolidated underwriting ratio:
     Benefits and claims ratio         43.3%           43.9%
     Expense ratio                     46.5            44.6
      Composite ratio                  89.8%           88.5%
    Components of diluted earnings
    per share:
     Net operating income             $0.49           $0.47          4.3%
      Net realized investment gains    0.02            0.02
     Net income                       $0.51           $0.49          4.1%

Consolidated results are provided in terms of both operating and net income to highlight the effect of realized investment gain or loss recognition on period-to-period comparisons. Recognition of such gains or losses can be highly discretionary and arbitrary due to such factors as the timing of individual securities sales, recognition of 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.

General Insurance Results

    The General Insurance Group continued to grow its book of business and
maintain strong underwriting results. Key indicators of Old Republic's General
Insurance performance follow:

                                              ($ in millions)
                                          Quarters Ended March 31,
                                        2006       2005        Change
    Net premiums earned                $459.9     $431.1        6.7%
    Net investment income                52.9       47.8       10.6
    Pretax operating income             $97.0      $84.8       14.3%

    Claims ratio                         64.5%      66.8%
    Expense ratio                        25.9       24.5
     Composite ratio                     90.4%      91.3%

General Insurance earned premiums continued to reflect the reasonably stable pricing environment of recent periods, as well as a moderate amount of new business. Underwriting results in the latest quarter benefited from relatively steady overall claims ratios and control of production and administrative expenses. The composite underwriting ratio represents the most widely accepted indicator of underwriting performance in the industry, and Old Republic has produced a favorable general insurance composite ratio below 100 percent for 16 consecutive quarters. Both underwriting/service and net investment income contributed to the increase in general insurance pretax income in this year's first quarter, with net investment income rising on the strength of a greater invested asset base and higher short-term interest rates.

Mortgage Guaranty Results

Old Republic's Mortgage Guaranty Group showed slightly lower pretax operating earnings in this year's first three months. Key indicators of this segment's performance follow:

                                              ($ in millions)
                                            Quarters Ended March 31,
                                          2006       2005      Change
    Net premiums earned                  $109.0     $105.4      3.4%
    Net investment income                  19.1       17.5      9.2
    Pretax operating income               $60.1      $64.6     -7.0%

    Claims ratio                           38.8%      32.2%
    Expense ratio                          23.7       23.1
     Composite ratio                       62.5%      55.3%

The composite underwriting ratio of 62.5 percent in the first quarter of 2006 was 13.0 percent higher than the corresponding ratio of 55.3 percent in 2005. Substantially all of the increase was due to higher claim costs. The increase in claim costs stems primarily from higher paid claims, as well as expectations of greater claim frequency and severity for the traditional primary business. The lower underwriting profit margin evidenced by this year's higher composite ratio was partially offset by net investment income growth.

Title Insurance Results

    Old Republic's Title Insurance segment registered a significant drop in
profitability in the first quarter of 2006. Key indicators of that performance
follow:

                                                 ($ in millions)
                                             Quarters Ended March 31,
                                           2006       2005      Change
    Net premiums and fees earned          $253.4     $231.7      9.4%
    Net investment income                    6.8        6.3      6.7
    Pretax operating income                 $7.6      $12.8    -40.6%

    Claims ratio                             6.2%       6.0%
    Expense ratio                           93.4       91.2
     Composite ratio                        99.6%      97.2%

While overall title premium and fee revenues were up by 9.4 percent in this year's first quarter, profit margins from underwriting/service operations deteriorated significantly. Substantially all of the margin compression occurred in the segment's direct operations, most of which are concentrated in the Western United States. Revenues in that region dropped by approximately 23 percent year-over-year to a level much lower than required to support the related operating expense structure. As a consequence of the relatively greater expense load, the segment posted a much higher composite underwriting ratio in this year's first quarter. The 6.7 percent growth in net investment income was insufficient to offset the significant reduction in underwriting/service profitability during the most recent quarter.

Corporate and Other Operations

Old Republic's small life and health business, and the net corporate service costs of the parent holding company and internal services subsidiaries produced combined pretax losses of $0.3 million and $1.7 million in the first quarters of 2006 and 2005, respectively. Life and health pretax income was affected adversely by greater life insurance claim costs for the first three months of 2006. Overall net corporate expenses, however, were lower year- over-year.

Cash, Invested Assets and Shareholders' Equity

The following table shows the changes in consolidated cash and invested assets as well as shareholders' equity, as of the dates shown:

                                      ($ in millions, except share data)
                                                   March 31,
                                      2006            2005          Change
    Cash and invested assets:
     Total                        $ 7,469.3       $ 7,016.7           6.4%
     Per share                        32.50           30.72           5.8
    Shareholders' equity:
    Total: as reported              4,066.8         3,880.9           4.8
     at cost                        4,064.3         3,787.5           7.3
    Per share: as reported            17.69           16.99           4.1
     at cost                         $17.68          $16.58           6.6%

Effective January 1, 2006, the Company reclassified its long-term investments in U.S. Treasury Tax and Loss Bonds held by its mortgage guaranty insurance subsidiaries. The reclassification is intended to conform to more common industry reporting practices and to better align such assets with the corresponding long-term deferred income tax liabilities to which they relate. As a result of this reclassification, invested asset balances have been reduced and the prepaid income tax asset has been increased, while periodic operating cash flow and cash flow from investing activities have been adjusted by correspondingly identical amounts as shown in the following tables. The reclassification has no effect on the financial position or net income of the Company, nor does it call for the receipt or disbursement of any additional cash resources. The following table shows the effect of these adjustments on pertinent financial statement performance indicators as of the balance sheet dates and for the periods shown.


                                                ($ in millions)
                                  March 31,       December 31,    March 31,
                                     2006             2005           2005
    Cash and invested assets:
     Previous classification       $7,937.8         $7,939.9      $7,562.5
     After reclassification         7,469.3          7,394.1       7,016.7
      Change                         (468.4)          (545.7)       (545.7)
    Total other assets:
     Previous classification        3,676.8          3,603.2       3,117.0
     After reclassification         4,145.3          4,149.0       3,662.8
      Change                         $468.4           $545.7        $545.7

                                                  ($ in millions)
                                        Quarters Ended       Years Ended
                                            March 31,         December 31,
                                        2006        2005    2005        2004
    Cash flows from operating activities:
     Previous classification           $107.3      $195.6  $880.0      $828.3
     After reclassification             184.6       149.1   833.6       775.5
      Change                             77.3       (46.4)  (46.4)      (52.8)
    Cash flows from investing activities:
     Previous classification            (82.6)     (171.6) (589.9)     (734.1)
     After reclassification            (159.9)     (125.2) (543.5)     (681.3)
      Change                           $(77.3)      $46.4   $46.4       $52.8

The investment portfolio reflects a current allocation of approximately 87 percent in fixed-maturity securities and 8 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.

The latest quarter's change in shareholders' equity reflects principally additions from earnings in excess of dividend payments, offset by a decline in the value of investment securities carried at market values.

Conference Call Information

Old Republic has scheduled a conference call at 3:00 p.m. EDT (2:00 p.m. CDT) today to discuss its first quarter 2006 performance and review ongoing trends. To access this call, log on to http://www.oldrepublic.com 15 minutes before the call to download the necessary software. A replay 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 primarily in the property and liability, mortgage guaranty, and title insurance fields. One of the nation's 50 largest publicly owned insurance organizations, Old Republic has assets of approximately $11.6 billion and shareholders' equity of $4.0 billion or $17.69 per share. Its current stock market valuation is approximately $5.1 billion, or $22.26 per share.

Safe Harbor Statement

Historical data pertaining to the operating results, liquidity, and other performance 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 and other 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. Of necessity, any such forward-looking statements, commentaries, or inferences 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, in particular, may also be affected by various risk-sharing arrangements with business producers as well as the risk management and pricing policies of government sponsored enterprises. Life and health 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 holding 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 any and 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 Corporation Visit: http://www.oldrepublic.com


                     Old Republic International Corporation
                             FINANCIAL HIGHLIGHTS (*)
                       ($ in Millions, Except Share Data)

                                                 Quarters Ended
                                                   March 31,
                                               2006          2005     Change
    NET INCOME:
          Total                               $117.4        $114.3     2.7%
          Per Share:  Basic                    $0.51         $0.50     2.0%
                      Diluted                  $0.51         $0.49     4.1%

    Average number of shares outstanding:
                      Basic              229,835,408   228,351,494
                      Diluted            231,999,922   230,861,205

    COMPOSITION OF EARNINGS PER SHARE:
    Basic Earnings:
          Net operating income                 $0.49         $0.48     2.1%
          Realized investment gains             0.02          0.02
              Net income                       $0.51         $0.50     2.0%
    Diluted Earnings:
          Net operating income                 $0.49         $0.47     4.3%
          Realized investment gains             0.02          0.02
              Net income                       $0.51         $0.49     4.1%


    FINANCIAL POSITION SUMMARY:

                                          March 31,  December 31, March 31,
                                             2006        2005        2005
    Assets:
      Cash and fixed maturity securities    $6,744.0    $6,675.4    $6,448.4
      Equity securities                        572.2       552.4       413.6
      Other invested assets                    153.0       166.3       154.7
      Accounts and premiums receivable         819.2       803.4       544.2
      Reinsurance balances recoverable       2,227.6     2,167.2     1,924.3
      Prepaid federal income taxes             468.4       545.7       545.7
      Sundry assets                            629.8       632.5       648.6
          Total                            $11,614.6   $11,543.2   $10,679.5



    Liabilities and Shareholders' Equity:
      Policy liabilities                  $1,245.0     $1,228.1     $1,088.1
      Benefit and claim reserves           5,068.7      4,939.8      4,544.4
      Federal income tax payable:
       current                                38.6        129.3         42.1
    deferred                                 404.5        421.6        522.9
      Debt                                   142.2        142.7        143.2
      Sundry liabilities                     648.5        657.4        457.7
      Shareholders' equity                 4,066.8      4,024.0      3,880.9
          Total                          $11,614.6    $11,543.2    $10,679.5

    Number of shares outstanding       229,845,866  229,575,404  228,376,174


    (*) Per share data reflect adjustments for the 25% stock dividend issued
        in December 2005.


                    Old Republic International Corporation
                          SEGMENTED OPERATING SUMMARY
                                ($ in Millions)

                                Net
                              Premiums    Net
                               & Fees  Investment  Other  Operating  Benefits
       Segment                 Earned    Income    Income  Revenues  & Claims

    Quarter Ended March 31, 2006
        General                $459.9    $52.9      $4.0    $516.9    $296.5
        Mortgage                109.0     19.1       3.0     131.2      42.3
        Title                   253.4      6.8       ---     260.3      15.6
        Other                    21.3      3.7       1.7      26.8      10.9
          Consolidated         $843.8    $82.7      $8.8    $935.3    $365.4

    Quarter Ended March 31, 2005
        General                $431.1    $47.8      $3.6    $482.5    $288.1
        Mortgage                105.4     17.5       4.0     127.0      33.9
        Title                   231.7      6.3       0.2     238.4      13.8
        Other                    20.6      3.5       0.1      24.2      10.4
          Consolidated         $788.8    $75.3      $8.0    $872.2    $346.3


    Fiscal Twelve Months Ended
     March 31, 2006
        General              $1,834.0   $202.1     $15.8  $2,052.0  $1,215.2
        Mortgage                433.1     71.7      15.4     520.3     168.0
        Title                 1,103.5     26.4       0.5   1,130.5      66.6
        Other                    71.0     17.1      12.9     101.1      34.6
          Consolidated       $3,441.9   $317.4     $44.7  $3,804.1  $1,484.5

    Fiscal Twelve Months Ended
     March 31, 2005
        General              $1,677.5   $186.8     $15.2  $1,879.7  $1,108.4
        Mortgage                409.8     68.6      18.1     496.7     148.0
        Title                 1,022.8     25.7       1.0   1,049.5      59.6
        Other                    68.1     14.4       0.6      83.1      36.0
          Consolidated       $3,178.3   $295.6     $35.1  $3,509.1  $1,352.2

                                                     Pretax
                                Sales                Operating   Composite
                               & Other      Total     Income    Underwriting
       Segment                 Expenses   Expenses   (Loss)      Ratios

    Quarter Ended March 31, 2006
         General                 $123.4      $419.9     $97.0       90.4%
         Mortgage                  28.8        71.1      60.1       62.5%
         Title                    237.1       252.7       7.6       99.6%
         Other                     16.1        27.1      (0.3)       ---
           Consolidated          $405.5      $770.9    $164.4       89.8%

    Quarter Ended March 31, 2005
         General                 $109.5      $397.7     $84.8       91.3%
         Mortgage                  28.3        62.3      64.6       55.3%
         Title                    211.7       225.6      12.8       97.2%
         Other                     15.5        26.0      (1.7)       ---
           Consolidated          $365.2      $711.6    $160.5       88.5%


    Fiscal Twelve Months Ended
     March 31, 2006
         General                 $474.5    $1,689.7    $362.2       91.2%
         Mortgage                 113.0       281.0     239.2       61.3%
         Title                    980.3     1,047.0      83.5       94.7%
         Other                     65.3        99.9       1.2        ---
           Consolidated        $1,633.2    $3,117.8    $686.3       88.8%

    Fiscal Twelve Months Ended
     March 31, 2005
         General                 $427.6    $1,536.1    $343.5       90.6%
         Mortgage                 116.9       264.9     231.7       60.2%
         Title                    927.7       987.4      62.1       96.4%
         Other                     63.5        99.6     (16.4)       ---
           Consolidated        $1,535.8    $2,888.1    $621.0       89.0%


                     Old Republic International Corporation
                         SEGMENTED OPERATING STATISTICS
                                 ($ in Millions)

                                                         Quarters Ended
                                                            March 31,
                                                     2006              2005

    General Insurance:
          Benefits and claims ratio                  64.5%             66.8%
          Expense ratio                              25.9%             24.5%
             Composite ratio                         90.4%             91.3%

          Paid loss ratio                            48.1%             49.5%

    Mortgage Guaranty:
          New insurance written:
           Traditional Primary                    $3,892.5          $4,705.6
            Bulk                                   3,256.9           3,299.5
            Other                                     51.3              39.8
            Total                                 $7,200.7          $8,045.0

          Net risk in force:
           Traditional Primary                   $14,587.0         $15,274.2
            Bulk                                   1,823.7           1,094.5
            Other                                    586.8             580.4
            Total                                $16,997.6         $16,949.2

          Earned premiums: Direct                   $128.9            $124.6
                           Net                      $109.0            $105.4

          Persistency/Traditional Primary             66.6%             65.2%

          Delinquency ratio:
           Traditional Primary                        4.12%             3.75%
            Bulk                                      3.42%             3.79%

          Claims ratio                                38.8%             32.2%
          Expense ratio                               23.7%             23.1%
             Composite ratio                          62.5%             55.3%

          Paid loss ratio                             32.9%             31.6%

    Title Insurance:
          Direct orders opened                      86,911            99,025
          Direct orders closed                      68,109            77,118

          Claims ratio                                 6.2%              6.0%
          Expense ratio                               93.4%             91.2%
             Composite ratio                          99.6%             97.2%

          Paid loss ratio                              4.1%              5.0%
SOURCE Old Republic International Corporation

CONTACT: A.C. Zucaro, Chairman & CEO of Old Republic, +1-312-346-8100; Leslie Loyet, Analysts/Investors, +1-312-640-6672, lloyet@financialrelationsboard.com, or Tim Grace, Media Inquiries, +1-312-640-6667, tgrace@financialrelationsboard.com, both of Financial Relations Board