Old Republic Reports Results For The First Quarter 2014

News provided by

Old Republic International Corporation

Apr 24, 2014, 09:00 ET

CHICAGO, April 24, 2014 /PRNewswire/ -- Old Republic International Corporation (NYSE: ORI), today reported financial results for the first quarter 2014. Operating profits for the quarter were marked by moderately improved performance in General Insurance and by the continuation of a strong turnaround in the run-off mortgage guaranty line. While Title Insurance operations remained profitable, a transitory real estate and mortgage market downturn halted the fast-paced earnings progress of the past three years. Consolidated net income was greatly enhanced by the realization of above-normal gains from sales of investment securities.

The major components of consolidated results and related data are summarized in the following table.

**Financial Highlights ()***
	Quarters Ended March 31,
	2014		2013
Operating revenues:
General insurance	$	745.3	$	681.8
Title insurance		401.8		467.7
Corporate and other		18.2		18.8
Subtotal		1,165.3		1,168.4
RFIG run-off business		73.9		96.9
Total	$	1,239.3	$	1,265.4
Pretax operating income (loss):
General insurance	$	81.8	$	76.0
Title insurance		4.7		21.5
Corporate and other		(0.5)		2.6
Subtotal		86.1		100.2
RFIG run-off business		19.5		(20.2)
Total		105.7		79.9
Realized investment gains (losses):
From sales		191.2		4.5
From impairments		-		-
Net realized investment gains (losses)		191.2		4.5
Consolidated pretax income (loss)		296.9		84.5
Income taxes (credits)		102.5		28.3
Net income (loss)	$	194.4	$	56.2
Components of diluted
earnings per share:
Net operating income (loss):
General insurance	$	0.19	$	0.17
Title insurance		0.01		0.05
Corporate and other		0.01		0.02
Subtotal		0.21		0.24
RFIG run-off business		0.04		(0.04)
Total		0.25		0.20
Net realized investment gains (losses)		0.42		0.01
Net income (loss)	$	0.67	$	0.21
Cash dividends paid per share	$	0.1825	$	0.1800
Ending book value per share	$	14.97	$	14.31

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

The preceding table shows both operating and net income to highlight the effects of realized investment gain or loss recognition on period-to-period earnings comparisons. Management uses net operating income, a non-GAAP financial measure, to evaluate and better explain operating performance, believing that this measure 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 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. Since late 2013, asset management operations have, in part, been oriented toward an enhancement of income from interest and dividends. To a large extent, this strategy has led to sales of non-income producing or low-yielding securities. Proceeds from the sales have largely been reinvested in higher yielding common shares of American companies with distinguished long-term records of earnings and dividend growth.

General Insurance Results – The table below shows the major elements entering into first quarter general insurance profitability.

	General Insurance Group
	Quarters Ended March 31,
	2014		2013		Change
A. Prior to reclassification/Including CCI run-off business:
Net premiums earned	$	663.2	$	608.0	9.1%
Net investment income		66.1		62.3	6.1
Benefits and claim costs		500.9		446.5	12.2
Pretax operating income (loss)	$	64.6	$	68.9	-6.2%

Claim ratio		75.5%		73.4%
Expense ratio		23.4		24.2
Composite ratio		98.9%		97.6%

*B. All CCI run-off business reclassification():**
Net premiums earned	$	6.8	$	7.8	-12.7%
Net investment income		0.1		-	84.4
Benefits and claim costs		23.4		15.1	55.4
Pretax operating income (loss)	$	(17.2)	$	(7.1)	-140.0%

Claim ratio		343.0%		192.6%
Expense ratio		10.8		-0.1
Composite ratio		353.8%		192.5%

C. After reclassification/Total Excluding all CCI run-off business:
Net premiums earned	$	656.4	$	600.2	9.4%
Net investment income		65.9		62.2	6.1
Benefits and claim costs		477.4		431.4	10.6
Pretax operating income (loss)	$	81.8	$	76.0	7.6%

Claim ratio		72.7%		71.9%
Expense ratio		23.5		24.5
Composite ratio		96.2%		96.4%

_______
(*) In connection with the run-off mortgage guaranty ("MI") and consumer credit indemnity ("CCI") combination, $16.4 and $7.0 of pretax operating losses for the first quarter 2014 and 2013, respectively, 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.

Consolidated general insurance operations, exclusive of the CCI run-off line, produced pretax operating income growth from both underwriting/service and net investment income. Net premiums earned grew by 9.4% compared with the 8.1% registered for all of 2013. The continuing benefits of moderate rate improvements and new business accounted for the higher percentage gain.

Income from insurance underwriting and related services grew slightly as suggested by the lower composite underwriting ratio. While loss costs edged up, a decline in the expense ratio provided a greater offset. Net investment income benefitted from a larger invested asset base and slightly higher yields on newly invested funds.

Title Insurance Results – Earnings remained positive in Old Republic's title insurance business despite a significant downturn in the real estate and mortgage markets during the past three quarters. The following highlights describe the Company's earnings in the face of these changed market dynamics.

	Title Insurance Group
	Quarters Ended March 31,
	2014		2013		Change
Net premiums and fees earned	$	393.8	$	460.5	-14.5%
Net investment income		7.1		6.5	9.0
Claim costs		23.8		31.5	-24.5
Pretax operating income (loss)	$	4.7	$	21.5	-77.8%

Claim ratio		6.1%		6.9%
Expense ratio		94.0		89.5
Composite ratio		100.1%		96.4%

The decline in title insurance premiums and fees reflects a significant drop in refinance transactions since mid-year 2013. The effects of the latter were magnified by adverse winter weather conditions, a rise in mortgage interest rates, and lingering uncertainty about credit availability. These negative factors were partially offset by the Company's continuing market share gains. From an underwriting perspective, the claim ratio was lower as claim frequency and severity continued to abate. The expense ratio increased as operating expenses were down by a somewhat lower percentage than the corresponding reduction in revenues.

RFIG Run-off Business Results – The table below reflects RFIG's comparative results before and after the combination of run-off MI and CCI coverages within a single run-off business segment adopted in 2012.

	RFIG Run-off Business
	Quarters Ended March 31,
	2014		2013		Change
A. Prior to reclassification/Excluding CCI run-off business:
Net premiums earned	$	58.8	$	79.9	-26.4%
Net investment income		8.1		9.0	-10.1
Claim costs		22.9		95.7	-76.0%
Pretax operating income (loss)	$	36.8	$	(13.0)	N/M

Claim ratio		39.0%		119.8%
Expense ratio		12.2		7.9
Composite ratio		51.2%		127.7%

*B. CCI run-off business reclassification():**
Net premiums earned	$	6.8	$	7.8	-12.7%
Net investment income		0.1		-	84.4
Benefits and claim costs		23.4		15.1	55.4
Pretax operating income (loss)	$	(17.2)	$	(7.1)	-140.0%

Claim ratio		343.0%		192.6%
Expense ratio		10.8		-0.1
Composite ratio		353.8%		192.5%

C. After reclassification/Total RFIG run-off MI and CCI business:
Net premiums earned	$	65.6	$	87.7	-25.2%
Net investment income		8.3		9.1	-9.3
Benefits and claim costs		46.4		110.8	-58.1
Pretax operating income (loss)	$	19.5	$	(20.2)	196.9%

Claim ratio		70.7%		126.4%
Expense ratio		12.1		7.1
Composite ratio		82.8%		133.5%

Consistent with their run-off operating mode, both MI and CCI lines posted further declines in quarterly earned premiums. Investment income dropped as well due to a pervasively low yield environment and a generally declining invested asset base in most of the past several years' quarterly periods. Downtrends in investment income were further accentuated in this year's first quarter as a greater proportion of investable assets were allocated to short-term fixed income securities. This higher concentration was undertaken in the context of a likely acceleration of payments on previously deferred claim settlements.

The substantial improvement in mortgage guaranty operating income arose from much lower claim provisions. Key factors driving these provisions to lower levels included rising rates at which previously reported defaults cured or were otherwise resolved without payment, and gradually improving trends in home prices, foreclosures, and real estate activity in general. Since year-end 2012, these factors have led to generally favorable developments of prior year-end reserves. For the first quarters of 2014 and 2013, favorable loss developments resulted in a lowering of claim ratios by 124.0 and 66.1 percentage points, respectively.

The MI expense ratio rose during this year's first quarter principally due to the greater expenses incurred for the now-terminated recapitalization initiative for this MI business.

In addition to the above-noted drop in earned premiums, the CCI line continued to be burdened by ongoing claim litigation costs.

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, and net interest costs pertaining to intra-system financing arrangements. The interplay of these various operating elements is reflected in the following table:

	Corporate and Other Operations
	Quarters Ended March 31,
	2014		2013		Change
Life & accident premiums earned	$	16.7	$	17.1	-1.9%
Net investment income		1.3		1.4	-2.3
Other income		-		0.3	-80.7
Benefits and claim costs		12.3		9.7	27.2
Insurance expenses		7.6		7.6	0.6
Corporate, interest, and other expenses-net		(1.2)		(1.1)	-10.2
Pretax operating income (loss)	$	(0.5)	$	2.6	-121.9%

Cash, Invested Assets, and Shareholders' Equity – The table below reflects Old Republic's consolidated cash and invested assets as well as the shareholders' equity account at the dates shown:

			Cash, Invested Assets, and Shareholders' Equity
									% Change
			March 31,		Dec. 31,		March 31,		March '14/		March '14/
			2014		2013		2013		Dec. '13		March '13
Cash and invested assets:		Fair value basis	$	11,286.3	$	11,109.1	$	10,986.5	1.6	%	2.7	%
		Original cost basis	$	10,765.8	$	10,503.7	$	10,152.7	2.5	%	6.0	%

Shareholders' equity:	Total		$	3,865.8	$	3,775.0	$	3,673.3	2.4	%	5.2	%
	Per common share		$	14.97	$	14.64	$	14.31	2.3	%	4.6	%

Composition of shareholders' equity per share:
Equity before items below			$	13.74	$	13.17	$	12.18	4.3	%	12.8	%
Unrealized investment gains (losses) and other
accumulated comprehensive income (loss)				1.23		1.47		2.13
Total			$	14.97	$	14.64	$	14.31	2.3	%	4.6	%

Segmented composition of shareholders' equity per share:
Excluding run-off segment			$	14.89	$	14.69	$	14.58	1.4	%	2.1	%
RFIG run-off segment				0.08		(0.05)		(0.27)
Total			$	14.97	$	14.64	$	14.31	2.3	%	4.6	%

Cash flow from consolidated operating activities was $135.4 for this year's first quarter compared with $143.2 for the same period in 2013.

The consolidated investment portfolio reflects a current allocation of approximately 89 percent to fixed-maturity securities and short-term investments, and 11 percent to equities. As has been the case for many years, Old Republic's invested assets are managed in consideration of enterprise-wide risk management objectives. Most importantly, these are intended to assure solid funding of its insurance subsidiaries' long-term obligations to policyholders and other beneficiaries, and the necessary long-term stability of capital accounts.

The investment portfolio contains no significant insurance risk-correlated asset exposures to real estate, mortgage-backed securities, collateralized debt obligations ("CDO's"), derivatives, junk bonds, hybrid securities, or illiquid private equity investments. In a similar vein, the Company does not engage in hedging or securities lending transactions, nor does it invest in securities whose values are predicated on non-regulated financial instruments exhibiting amorphous or unfunded counter-party risk attributes.

The following table shows the changes in the shareholders' equity per share. As indicated, the changes resulted mostly from each year's net income or loss, dividend payments to shareholders, and changes in the value of invested assets carried at fair value.

	Shareholders' Equity Per Share
	Quarters Ended March 31,
	2014		2013
Beginning balance	$	14.64	$	14.03
Changes in shareholders' equity:
Net operating income (loss)		0.27		0.21
Net realized investment gains (losses):
From sales		0.48		0.01
From impairments		-		-
Subtotal		0.48		0.01
Net unrealized investment gains (losses)		(0.21)		0.26
Total realized and unrealized investment gains (losses)		0.27		0.27
Cash dividends		(0.18)		(0.18)
Stock issuance, foreign exchange, and other transactions		(0.03)		(0.02)
Net change		0.33		0.28
Ending balance	$	14.97	$	14.31

Conference Call Information
Old Republic has scheduled a conference call at 3:00 p.m. ET (2:00 p.m. CT) today, to discuss its first quarter 2014 performance and to review major operating trends and business developments. To access this call live in listen-only mode:

Log on to the Company's website at www.oldrepublic.com 15 minutes before the call to download the necessary software, or, alternatively
the call can also be accessed by phone at 888-503-8175.

Interested parties may also listen to a replay of the call through May 1, 2014 by dialing 877-870-5176, passcode 8693720, or by accessing it on Old Republic International's website through May 24, 2014.

About Old Republic
Chicago-based Old Republic International Corporation is one of the nation's 50 largest publicly held insurance organizations. Its most recent financial statements reflect consolidated assets of approximately $16.81 billion and common shareholders' equity of $3.86 billion, or $14.97 per share. Its current stock market valuation is approximately $4.40 billion, or $16.91 per share.

The Company is organized as an insurance holding company whose subsidiaries actively market, underwrite, and provide risk management services for a wide variety of coverages mostly in the general and title insurance fields. A long-term interest in mortgage guaranty and consumer credit indemnity lines has devolved to a run-off operating mode in recent years.

The nature of Old Republic's business requires that it be managed for the long run. For the 25 years ended in 2013, the Company's total market return, with dividends reinvested, has grown at a compounded annual rate of 12.0 percent per share. For the same period, the total market return, with dividends reinvested, for the S&P 500 Index has grown at a 10.3 percent annual compound rate. During those years, Old Republic's shareholders' equity account, inclusive of cash dividends, has risen at an average annual rate of 10.0 percent per share, and the regular cash dividend has grown at a 9.7 percent annual compound rate. According to the most recent edition of Mergent's Dividend Achievers, Old Republic is one of just 100 qualifying companies, out of thousands considered, that have posted at least 25 consecutive years of annual dividend growth.

____________________________

Accompanying Financial Data:

Summary Financial Statements and Common Stock Statistics
Safe Harbor Statement

Financial Supplement
A financial supplement to this news release is available on the Company's website.

Old Republic International Corporation
SummaryFinancial Statements and Common Stock Statistics (Unaudited)
		March 31,		December 31,		March 31,
SUMMARY BALANCE SHEETS:		2014		2013		2013
Assets:
Cash and fixed maturity securities		$	9,976.4	$	9,990.6	$	9,994.8
Equity securities			1,190.0		1,004.2		873.2
Other invested assets			119.8		114.3		118.4
Cash and invested assets			11,286.3		11,109.1		10,986.5
Accounts and premiums receivable			1,288.0		1,190.5		1,183.9
Federal income tax recoverable:	Current		9.2		114.7		54.6
	Deferred		78.3		48.4		78.5
Prepaid federal income taxes			20.1		-		-
Reinsurance balances recoverable			3,270.3		3,215.7		3,273.1
Sundry assets			858.5		855.7		833.9
Total		$	16,811.0	$	16,534.4	$	16,410.7
Liabilities and Shareholders' Equity:
Policy liabilities		$	1,782.8	$	1,695.7	$	1,628.7
Benefit and claim reserves			9,498.0		9,433.5		9,353.4
Debt			566.2		569.2		570.0
Sundry liabilities			1,098.1		1,060.8		1,185.0
Shareholders' equity			3,865.8		3,775.0		3,673.3
Total		$	16,811.0	$	16,534.4	$	16,410.7

SUMMARY INCOME STATEMENTS:		Quarters Ended March 31,				Fiscal Twelve Months Ended March 31,
		2014		2013		2014		2013
Net premiums and fees earned		$	1,132.7	$	1,165.6	$	4,852.7	$	4,599.1
Net investment income			82.8		79.3		322.2		330.0
Other income			23.8		20.4		93.5		103.3
Net realized investment gains (losses)			191.2		4.5		334.8		49.5
Total revenues			1,430.6		1,269.9		5,603.3		5,082.0
Benefits and claims			560.0		583.6		2,214.7		2,732.5
Sales and general expenses			567.8		595.9		2,481.6		2,363.8
Interest and other costs			5.7		5.8		21.5		27.0
Total expenses			1,133.6		1,185.4		4,717.9		5,123.4
Pretax income (loss)			296.9		84.5		885.3		(41.3)
Income taxes (credits)			102.5		28.3		299.3		(28.4)
Net income (loss)		$	194.4	$	56.2	$	586.0	$	(12.9)


COMMON STOCK STATISTICS:
Net income (loss):	Basic	$	0.75	$	0.22	$	2.27	$	(0.05)
	Diluted	$	0.67	$	0.21	$	2.04	$	(0.05)
Components of earnings per share:
Basic, net operating income (loss)		$	0.27	$	0.21	$	1.43	$	(0.18)
Realized investment gains (losses)			0.48		0.01		0.84		0.13
Basic net income (loss)		$	0.75	$	0.22	$	2.27	$	(0.05)
Diluted, net operating income (loss)		$	0.25	$	0.20	$	1.30	$	(0.18)
Realized investment gains (losses)			0.42		0.01		0.74		0.13
Diluted net income (loss)		$	0.67	$	0.21	$	2.04	$	(0.05)
Cash dividends on common stock		$	.1825	$	.1800	$	.7225	$	.7125
Book value per share						$	14.97	$	14.31
Common shares outstanding:
Average basic			257,933,928		256,279,364		257,690,189		256,036,031
Average diluted			294,513,903		292,081,785		294,150,269		256,036,031
Actual, end of period							258,168,607		256,619,874


SUMMARY STATEMENTS OF COMPREHENSIVE INCOME (LOSS):
Net income (loss) as reported		$	194.4	$	56.2	$	586.0	$	(12.9)
Post-tax net unrealized gains (losses)			(55.1)		67.9		(289.2)		104.3
Other adjustments			(3.5)		(1.2)		60.4		(14.6)
Net adjustments			(58.7)		66.6		(228.8)		89.6
Comprehensive income (loss)		$	135.7	$	122.8	$	357.2	$	76.6

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 oral or written statements made in the Company's reports, press releases, and 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 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. RFIG run-off and Title Insurance results can be affected by similar factors, and 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. RFIG run-off results, in particular, may also be affected by various mortgage guaranty risk-sharing arrangements with business producers, as well as the risk management and pricing policies of government sponsored enterprises. Life and accident 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.

A more detailed listing and discussion of the risks and other factors which affect the Company's risk-taking insurance business are included in Part I, Item 1A - Risk Factors, of the Company's 2013 Form 10-K annual report and Part II, Item 1A - Risk Factors, of the Company's recent Form 10-Q filings to the Securities and Exchange Commission, which Items are specifically incorporated herein by reference.

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:
Please write to:
Investor Relations
Old Republic International Corporation
307 North Michigan Avenue
Chicago, IL 60601
312-346-8100
or visit us at www.oldrepublic.com

SOURCE Old Republic International Corporation