Old Republic Reports Financial Results For The First Quarter 2013

CHICAGO, April 25, 2013 /PRNewswire/ -- Old Republic International Corporation (NYSE: ORI),today reported financial results for the first quarter 2013. In late March 2012, the Company announced that its General Insurance Group's Consumer Credit Indemnity (CCI) division would be combined with its Mortgage Guaranty (MI) business in a renamed Republic Financial Indemnity Group, Inc. ("RFIG") run-off segment. The two operations, which offer similar insurance coverages, have been in run-off operating mode since 2008 (CCI) and August 2011 (MI), and are inactive from new business production standpoints.

The combination affects the manner in which segmented information is now presented. The operating results of the combined coverages are therefore shown as a single run-off book of business within ORI's consolidated operations. Prior periods' segmented information for the general insurance and RFIG run-off business segments has therefore  been reclassified to provide necessary consistency in period-to-period comparisons.



Financial Highlights (*)




Quarters Ended March 31,




2013


2012


Change



Operating Revenues:










Excluding run-off business

$

1,168.4


$

1,029.0


13.5%



RFIG run-off business


96.9



126.0


-23.1



Total

$

1,265.4


$

1,155.1


9.5%



Net Operating Income (Loss):










Excluding run-off business

$

66.4


$

57.9


14.7%



RFIG run-off business


(13.1)



(59.3)


77.8



Total

$

53.2


$

(1.4)


N/M%



Net Income (Loss):










Excluding run-off business

$

69.1


$

59.8


15.6%



RFIG run-off business


(12.9)



(59.3)


78.3



Total

$

56.2


$

0.4


N/M%



Diluted Earnings Per Share:










Net Operating Income (Loss)










Excluding run-off business

$

0.24


$

0.22


9.1%



RFIG run-off business


(0.04)



(0.23)


82.6



Total

$

0.20


$

(0.01)


N/M%



Net Income (Loss)










Excluding run-off business

$

0.25


$

0.23


8.7%



RFIG run-off business


(0.04)



(0.23)


82.6



Total

$

0.21


$

-


N/M%













Cash Dividends Per Share

$

0.1800


$

0.1775


1.4%



Ending Book Value Per Share

$

14.31


$

14.74


-2.9%













(*) Unaudited; All amounts in this report are in millions except per share data and percentages.


N/M = Not meaningful

First quarter 2013 consolidated net operating earnings climbed to positive territory for the first time in 10 consecutive quarters. General insurance earnings edged down year-over-year, but the decline was far outpaced by greatly improved performance in the Company's title business and the RFIG run-off segment. Title insurance registered a triple-digit improvement in operating earnings, while the combined mortgage guaranty and consumer credit indemnity run-off segment produced much lower losses.

Consolidated Results – The major components of Old Republic's consolidated results and other data for the periods reported upon are shown below:


Quarters Ended March 31,


2013


2012

Operating revenues:






General insurance

$

681.8


$

645.8

Title insurance


467.7



362.2

Corporate and other


18.8



20.9

   Subtotal


1,168.4



1,029.0

RFIG run-off business


96.9



126.0

Total

$

1,265.4


$

1,155.1

Pretax operating income (loss):






General insurance

$

76.0


$

80.5

Title insurance


21.5



9.4

Corporate and other


2.6



(4.2)

    Subtotal


100.2



85.6

RFIG run-off business


(20.2)



(91.2)

Total


79.9



(5.6)

Realized investment gains (losses):






From sales


4.5



2.9

From impairments


-



-

Net realized investment gains (losses)


4.5



2.9

Consolidated pretax income (loss)


84.5



(2.6)

Income taxes (credits)


28.3



(3.1)

Net income (loss)

$

56.2


$

0.4







Consolidated underwriting ratio:






Including RFIG run-off business:






Benefits and claim ratio

50.1%



59.4%

Expense ratio

49.1



47.6

Composite ratio

99.2%



107.0%







Excluding RFIG run-off business:






Benefits and claim ratio

43.9%



45.2%

Expense ratio

52.6



51.9

Composite ratio

96.5%



97.1%

Diluted earnings per share:






Net operating income (loss)

$

0.20


$

(0.01)

Net realized investment gains (losses)


0.01



0.01

Net income (loss)

$

0.21


$

-







Cash dividends paid per share

$

0.1800


$

0.1775

Components of diluted






earnings per share:






Net operating income (loss):






General insurance

$

0.17


$

0.21

Title insurance


0.05



0.02

Corporate and other


0.02



(0.01)

Subtotal


0.24



0.22

RFIG run-off business


(0.04)



(0.23)

Total


0.20



(0.01)

Net realized investment gains (losses)


0.01



0.01

Net income (loss)

$

0.21


$

-

The preceding tables show operating and net income or loss to highlight the effects of realized investment gain or loss recognition on period-to-period comparisons. The recognition of realized investment gains or losses can be highly discretionary and arbitrary due to such factors as the timing of individual securities sales, recording of estimated 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. Likewise, non-recurring items which may emerge from time to time can distort the comparability of the Company's results from period to period. Accordingly, management uses net operating income, a non-GAAP financial measure, to evaluate and better explain operating performance, and believes its use enhances an understanding of Old Republic's core business results. Operating income, however, does not replace net income determined in accordance with GAAP as a measure of total profitability. The composition of realized gains or losses follows:


Quarters Ended


March 31,


2013


2012

Realized gains (losses) from sales of






previously impaired securities:






Actual tax basis (loss) on sales

$

-


$

-

Accounting adjustment for impairment






charges taken in prior periods


-



-

Net amount included herein


-



-

Net realized gains from sales of all other securities


4.5



2.9

Net gain (loss) from actual sales


4.5



2.9

Net realized losses from impairments


-



-

Net realized investment gains (losses) reported herein

$

4.5


$

2.9

General Insurance Results Operating earnings with and without the CCI run-off business were moderately lower in this year's first quarter. Comparative performance indicators are shown in the following table:


General Insurance Group


Quarters Ended March 31,


2013


2012


Change

A. Prior to reclassification/ Including CCI run-off business:
















Net premiums earned

$

608.0


$

561.0


8.4%

Net investment income


62.3



66.6


-6.5

Benefits and claim costs


446.5



400.2


11.6

Pretax operating income (loss)

$

68.9


$

71.0


-3.0%

Claim ratio

73.4%


71.3%



Expense ratio

24.2


26.1



Composite ratio

97.6%


97.4%









B. All CCI run-off business reclassification(*):














Net premiums earned

$

7.8


$

12.0


-35.1%

Net investment income


-



-


-

Benefits and claim costs


15.1



20.2


-25.4

Pretax operating income (loss)

$

(7.1)


$

(9.4)


24.0%

Claim ratio

192.6%


167.6%



Expense ratio

-0.1


10.5



Composite ratio

192.5%


178.1%









C. After reclassification/Total Excluding all CCI run-off business:














Net premiums earned

$

600.2


$

548.9


9.3%

Net investment income


62.2



66.6


-6.6

Benefits and claim costs


431.4



379.9


13.6

Pretax operating income (loss)

$

76.0


$

80.5


-5.5%

Claim ratio

71.9%


69.2%



Expense ratio

24.5


26.5



Composite ratio

96.4%


95.7%



__________________

(*) In connection with the previously noted MI / CCI combination, $7.0 of pretax operating losses for the first quarter 2013, are retained by certain general insurance companies pursuant to various quota share and stop loss reinsurance agreements. All of these amounts, however, have been reclassified and are included for segment reporting purposes such that section (B) in the above table incorporates 100% of the CCI run-off business results.

Favorable premium trends for workers' compensation and liability insurance coverages within Old Republic's construction, trucking, and large account risk management business continued as the mainstay of top line growth. Moderate rate improvements garnered over the past two years or so, and the slowly strengthening pace of U.S. economic activity were major underlying factors in these regards.

As in all other segments, net investment income fell moderately, and all of the latest quarter's downturn in general insurance operating earnings stemmed from this source. While operating cash flow remained positive and additive to the invested asset base, market yields on newly invested equity and fixed income securities remained in a depressed state.

As section (C) in the preceding table shows, the general insurance composite underwriting ratio was slightly higher in this year's first quarter vis-à-vis the same period of 2012. Of the two components entering into this ratio, the claims portion finished slightly higher as a result of upward pressures on workers' compensation and liability insurance claim costs. By contrast, the latest quarter's expense ratio compared favorably with that posted in the same period of 2012. New Financial Accounting Standards Board guidance that took effect on January 1, 2012 resulted in additional expense charges of 1.9 percentage points in last year's first quarter. The charges, which ultimately aggregated 1.6 percentage points for all of 2012, pertained to deferred policy acquisition costs that were no longer amortizable.

Title Insurance Results – Operating momentum in Old Republic's title insurance business accelerated further in the first quarter of 2013. The progress achieved is reflected in the performance indicators shown below:


Title Insurance Group


Quarters Ended March 31,


2013


2012


Change

Net premiums and fees earned

$

460.5


$

355.0


29.7%

Net investment income


6.5



6.7


-3.9

Claim costs


31.5



25.6


22.9

Pretax operating income (loss)

$

21.5


$

9.4


128.4%

Claim ratio

6.9%


7.2%



Expense ratio

89.5


91.5



Composite ratio

96.4%


98.7%



Growth in title insurance premiums and fees benefited from the same factors that have driven the top line in the past four years. Market share gains emanating from title industry dislocations and consolidation during these years have been retained. In recent quarters, the revenue stream has been further enhanced by greater mortgage refinancing activity occasioned by a slowly improving housing market and low mortgage rates. From an underwriting perspective, title insurance claim, expense, and composite ratios showed a continuation of the downward slope they have demonstrated since 2010.

RFIG Run-off Business Results – The table below reflects RFIG's comparative results before and after the previously noted combination of Old Republic's mortgage guaranty and consumer credit indemnity run-off coverages in a single run-off business:


RFIG Run-off Business


Quarters Ended March 31,


2013


2012


Change

A. Prior to reclassification/ Excluding CCI run-off business:

















Net premiums earned

$

79.9


$

103.2


-22.6%

Net investment income


9.0



10.3


-11.9

Claim costs


95.7



179.3


-46.6

Pretax operating income (loss)

$

(13.0)


$

(81.8)


84.1%

Claim ratio

119.8%


173.6%



Expense ratio

7.9


13.6



Composite ratio

127.7%


187.2%





B. CCI run-off business reclassification(*):










Net premiums earned

$

7.8


$

12.0


-35.1%

Net investment income


-



-


-

Claim costs


15.1



20.2


-25.4

Pretax operating income (loss)

$

(7.1)


$

(9.4)


24.0%

Claim ratio

192.6%


167.6%



Expense ratio

-0.1


10.5



Composite ratio

192.5%


178.1%









C. After reclassification/Total RFIG run-off MI and CCI business:














Net premiums earned

$

87.7


$

115.3


-23.9%

Net investment income


9.1



10.3


-11.2

Claim costs


110.8



199.5


-44.4

Pretax operating income (loss)

$

(20.2)


$

(91.2)


77.8%

Claim ratio

126.4%


173.0%



Expense ratio

7.1


13.3



Composite ratio

133.5%


186.3%



__________________

(*) In connection with the previously noted MI / CCI combination, $7.0 of pretax operating losses for the first quarter 2013, are retained by certain general insurance companies pursuant to various quota share and stop loss reinsurance agreements. All of these amounts, however, have been reclassified and are included for segment reporting purposes such that section (B) in the above table incorporates 100% of the CCI run-off business results.

Both MI and CCI premiums registered further declines in the first three months of 2013. The outcome is reflective of a run-off book of business devoid of new premium production since at least 2011. Net investment income also fell in this segment as the result of a pervasively low yield environment.

First quarter 2013 MI claim costs declined significantly as a continuing downtrend in newly reported defaults, relatively stable cure rates, and lower paid and settled claims more than offset reduced provisions for anticipated claim rescissions or denials, as well as assumptions of greater defaults headed toward foreclosure. Lower 2013 operating expenses reflect ongoing cost control geared to a run-off operating mode.

Section (B) in the above table shows 100% of CCI results fully reclassified for segment reporting purposes. First quarter 2013 claim costs were driven up by higher estimates of continued litigation exposures to claims management, as well as reduced expectations of salvage recoveries on cumulative claims incurred in the past several years.

Corporate and Other Operations – The combination of a small life and accident insurance business and the net costs associated with the parent holding company and its internal services subsidiaries usually produce highly variable results. Earnings variations posted by these relatively minor elements of Old Republic's business stem from volatility inherent to the small scale of life and accident insurance operations, fluctuations in the costs of external debt, and net interest expenses on intra-system financing arrangements. Corporate expenses since last year's second quarter benefited from lower interest charges following the repayment of high cost convertible debt of $316 million in May of 2012. The interplay of these various operating elements is reflected in the following table:


Corporate and Other Operations


Quarters Ended March 31,


2013


2012


Change

Life & accident premiums earned

$

17.1


$

18.2


-6.3%

Net investment income


1.4



2.0


-32.7

Other income


.3



.5


-46.4

Benefits and claim costs


9.7



11.3


-14.0

Insurance expenses


7.6



8.0


-5.5

Corporate, interest, and other expenses-net


(1.1)



5.7


-119.7

Pretax operating income (loss)

$

2.6


$

(4.2)


161.6%