Old Republic International Corporation · NYSE:ORI
Old Republic International — Investor Presentation (November 2004)
37 slides from Old Republic International's investor presentation, November 2004
Slide 1: Business Update November 2004
International Corporation Business Update November 2004 (Published Results to September 30, 2004)
Slide 2: Business Objectives Emphasize
Old Republic Business Objectives Emphasize: • Balance Sheet Strength: • To Maintain Strong Financial Ratings • To Provide Ample Capital for the Long Haul • By Promoting Strong Reserve Position to: • Ensure Quality of Reported Earnings • Support Pricing Rationalization • Disciplined Underwriting Thro
Slide 3: Business Model: Capital Allocation
Old Republic Business Model : Capital Allocation Current Long Term Current Objective Commercial General Insurance Lines 52.3% 50.0% - 55.0% Housing Mortgage Guaranty 35.0% 30.0% - 35.0% Title 10.5% 7.0% - 8.0% Life & Health 2.2% 2.0% - 3.0% 100.0% 100.0% • We’re just about near objectives. 3
Slide 4: Business Model: Insurance Coverages
Old Republic Business Model : Insurance Coverages September 30, 2004 Actual / Longer Term Objective For Current Capital General Insurance: Premiums (*) Premiums Allocation Commercial Auto (Trucking) 19.5% 20.0% Workers' Compensation 14.1% 15.0% Commercial Multi Peril & Inland Marine 5.2% 5.0% Financ
Slide 5: Business Model: Industry Focus
Old Republic Business Model: Industry Focus December 31, 2003 Actual / Longer Term Current (*) Objective Trucking 18.7% 20.0% General Industry (**) 8.7% 10.0% Contractors 8.3% 9.5% Financial Indemnities 6.5% 7.5% General Aviation 3.7% 4.0% Energy 2.1% 2.5% Home & Auto Warranties 2.8% 3.5% Forestry &
Slide 6: Segmented Operating Revenue Trends
Old Republic Segmented Operating Revenue Trends ($ in Millions) Fiscal Year % Change Operating Revenues: 1999 2000 2001 2002 2003 to 9/30/04 1999 - 2004 General $1,053.2 $1,057.1 $1,195.0 $1,376.6 $1,572.7 $1,757.4 66.9% Mortgage Guaranty 355.9 395.3 436.0 467.1 498.6 490.1 37.7% Title 597.1 518.7 6
Slide 7: Segmented Pre-Tax Operating Income Trends
Old Republic Segmented Pre-Tax Operating Income Trends ($ in Millions) Fiscal Year % Change Pre-tax Operating Income: 1999 2000 2001 2002 2003 to 9/30/04 1999 - 2004 General $69.7 $116.9 $141.4 $182.1 $259.0 $317.4 355.4% Mortgage Guaranty 177.3 240.1 261.9 267.7 276.4 232.1 30.9% Title 44.0 40.3 74
Slide 8: Pre-Tax Operating Margin Trends
Old Republic Pre-Tax Operating Margin Trends * General Mortgage Title Insurance Guaranty Insurance Consolidated 1999 6.6% 49.8% 7.4% 13.9% 2000 11.1% 60.7% 7.8% 19.3% 2001 11.8% 60.1% 11.5% 20.2% 2002 13.2% 57.3% 11.7% 19.9% 2003 16.5% 55.4% 11.5% 20.2% Nine Mos. '03 16.1% 57.3% 12.7% 20.8% Nine Mos
Slide 9: Summary of Consolidated Results
Old Republic Summary of Consolidated Results ($ in Millions, Except Per Share Data) Nine Months Ended September 30, Fiscal Twelve Months Ended September 30, 2004 2003 % Change 2004 2003 % Change Net Premiums and Fees $2,303.7 $2,158.9 6.7% $3,080.8 $2,832.2 8.8% Net Investment Income 214.6 208.6 2.9
Slide 10: General Insurance Group Financial Strength
General Insurance Group Financial Strength September 30, 2004 Most Current Ratings Assigned by: A.M. Standard • Key Operating Subsidiaries: Best & Poor’s Moody’s - Old Republic Insurance Company A+ AA Aa2 - Bituminous Casualty A+ AA Aa2 - Great West Casualty A+ AA Aa2 - Old Republic Surety A AA N/R
Slide 11: General Insurance Gross Revenue Contributions by Major Coverage
General Insurance Group Gross Revenue Contributions by Major Coverage Nine Months 1999 2000 2001 2002 2003 2003 2004 Commercial Auto (Trucking) 47.1% 41.4% 37.9% 35.1% 33.4% 34.4% 33.3% Workers' Compensation 14.9% 17.7% 19.4% 20.6% 22.6% 21.4% 24.0% Property 12.1% 12.0% 11.3% 10.9% 9.7% 10.0% 8.9% C
Slide 12: General Insurance Gross Revenue Contributions by Major Industry Served
General Insurance Group Gross Revenue Contributions by Major Industry Served 1999 2000 2001 2002 2003 Transportation (Trucking) 49.2% 41.6% 36.9% 35.4% 34.5% General Industry (*) 10.3% 12.6% 16.5% 15.6% 16.1% Contractors 11.2% 13.4% 14.5% 15.9% 15.3% Energy 4.7% 5.8% 5.7% 4.5% 3.9% Financial Indemni
Slide 13: General Insurance Underwriting Trends
General Insurance Group Underwriting Trends * 120% 120% 115% 115% 110% 110% Insurance Industry Composite Ratio 105% 105% 100% 100% Old Republic Composite Ratio 95% 95% 90% 90% 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 * The lower the composite ratio, the better the underwriting performance.
Slide 14: Quarterly Loss and Composite Ratio Trends
General Insurance Group Quarterly Loss and Composite Ratio Trends 130% 130% 120% 120% 110% 110% Composite Ratio 100% 100% 90% 90% 80% Loss Ratio 80% 70% 70% 60% 60% 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 2000 | 2001 | 2002 | 2003 | 2004 (By Quarter) 14
Slide 15: General Insurance Group Underwriting Performance
General Insurance Group Underwriting Performance ($ in Millions) Calendar Years Nine Months 1999 2000 2001 2002 2003 2003 2004 All Lines Combined Net Premiums Earned $854.5 $859.8 $1,000.7 $1,182.3 $1,382.7 $1,014.9 $1,197.7 Composite Ratio 112.2% 106.0% 102.0% 98.4% 93.3% 93.6% 90.5% Commercial Aut
Slide 16: General Insurance Group Financial Performance
General Insurance Group Financial Performance ($ in Millions) Nine Months Ended September 30, 1999 2000 2001 2002 2003 2003 2004 Net Premiums Earned $853.4 $857.8 $1,000.2 $1,184.1 $1,379.5 $1,012.0 $1,194.2 Pre-Tax Income $69.7 $116.9 $141.4 $182.1 $259.0 $186.7 $245.0 Operating Cash Flow $23.4 $10
Slide 17: General Insurance Group Outlook, Strategy, Issues
General Insurance Group Outlook, Strategy, Issues • Continued Expansion of Key Specialties: Aviation/Home & Auto Warranties/ Risk Management/Trucking/Contractors/E&O/D&O • Focus on Increased Client Retention/Emphasize Organic Growth • Continue to Improve Composite Ratio - Price Discipline: Terms/Rat
Slide 18: Mortgage Guaranty Group Profile
Mortgage Guaranty Group Profile • Protect Lenders from Default Costs on Home Loans with mostly 3-10% Down Payments • Sixth Largest Insurer (11% Share and 7 Insurers) • Group Currently Represents Over 35% of Old Republic’s Pre-Tax Income • Earnings Have Declined as a Result of a Rising Loss Ratio: •
Slide 19: Mortgage Guaranty Claims Trends
Mortgage Guaranty Group Claims Trends Nine Months 1999 2000 2001 2002 2003 2004 GAAP Basis Statistics: Incurred Loss Ratio 22.3% 15.0% 16.1% 14.1% 22.7% 34.4% Paid Loss Ratio 16.9% 15.1% 13.4% 16.1% 23.9% 30.0% Delinquency Rates: Traditional Primary 2.78% 2.51% 2.84% 3.43% 3.95% 3.90% Bulk NA NA 0.3
Slide 20: Mortgage Guaranty New Insurance Written
Mortgage Guaranty Group New Insurance Written $15 50% Total New Insurance Written 40% Bulk as Percent of Total New Insurance Written $10 ($ in Billions) 30% Bulk Volume as a Percent 20% of Total NIW $5 10% Bulk Volume $0 0% 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 2001 | 2002 | 2003 | 2004 20
Slide 21: Mortgage Guaranty Persistency & Net Run-off
Mortgage Guaranty Group Persistency(*) & Net Run-off 100% $12.0 90% Persistency * $10.0 80% 70% $8.0 ($ in Billions) Persistency Net run-off 60% 50% $6.0 40% $4.0 30% Net Run-off * 20% $2.0 10% 0% $0.0 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 1999 | 2000 | 2001 | 2002 | 2
Slide 22: Mortgage Guaranty Net Risk In Force
Mortgage Guaranty Group Net Risk In Force $18.0 10.0% Total Net Risk In Force Bulk Net Risk In Force as $15.0 Total Net Risk In Force 8.0% Percent of Total ($ in Billions) $12.0 6.0% $9.0 4.0% $6.0 Bulk Net Risk In Force as Percent of Total 2.0% $3.0 $0.0 0.0% 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q
Slide 23: Mortgage Guaranty Market Analysis
Mortgage Guaranty Group Market Analysis ($ in Billions) Nine Months 2000 2001 2002 2003 2003 2004 Mortgage Rates (Average 30 Year Fixed) 8.06% 6.97% 6.54% 5.82% 5.79% 5.87% Total Residential Mortgage Originated in U.S. $1,048 $2,058 $2,680 $3,760 * $3,120 $2,035 * Mortgage Insurance Industry Primary
Slide 24: Mortgage Guaranty Financial Performance
Mortgage Guaranty Group Financial Performance ($ in Millions) Nine Months Ended September 30, 1999 2000 2001 2002 2003 2003 2004 Operating Revenues $355.9 $395.4 $436.1 $467.1 $498.6 $375.1 $366.6 Pre-Tax Income $177.3 $240.1 $261.9 $267.7 $276.4 $214.9 $170.7 Operating Cash Flow $192.9 $221.6 $238.
Slide 25: Mortgage Guaranty Group Outlook
Mortgage Guaranty Group Outlook • Continuation of Historically Low Mortgage Rates + Good Purchase Market, Lots of First Time Buyers + Favorable Mitigation Environment - Continued Growth in MI Alternatives (i.e. “piggybacks”) • Recent Increases in Loss Ratio to Moderate + Continued Growth in Jobs - A
Slide 26: Title Insurance Group Profile
Title Insurance Group Profile • Title Insurance Required for Virtually Every Real Estate Transaction: – Residential and Commercial – Sales and Refinancings • Operates in 49 States – 250 Branch, Subsidiary and Agency Servicing Offices – Volume Approximately 61% from Agents/ 39% from Direct Operations
Slide 27: Title Insurance Financial Performance
Title Insurance Group Financial Performance ($ in Millions) Nine Months Ended September 30, 1999 2000 2001 2002 2003 2003 2004 Net Premiums and Fees Earned $573.8 $494.0 $625.3 $813.4 $1,103.8 $809.3 $759.8 Pre-Tax Income $44.0 $40.3 $74.6 $97.8 $129.8 $105.2 $65.6 Operating Cash Flow $36.0 $42.9 $7
Slide 28: Title Insurance Group Outlook and Strategy
Title Insurance Group Outlook and Strategy • 2003 a Record Year / 2004: a Slow Down – Anticipate Downturn in Revenues as Residential Refinancings Are Curtailed • Challenge is to Manage Staff and Expense Levels in Tandem with Top Line Movement • Focus on Continued Technology Initiatives: – Automation
Slide 29: Investment Portfolio Profile
Old Republic Investment Portfolio Profile • Invest in Context of the Insurance Business/Low Risk Portfolio • Main Thrust: – Protect Capital Through Plain Vanilla, High Quality Portfolio – Enable Stable Growth of Investment Income – No Emphasis on Realized Capital Gains • Cash and Invested Assets at
Slide 30: September 30, 2004 Investment Portfolio
Old Republic September 30, 2004 Investment Portfolio Credit Quality Distribution Investment of Fixed-Maturity Securities Portfolio Composition Baa Tax-Exempt (19.7%) Bonds Other (20.0%) (.6%) Taxable Equity Bonds Securities (67.3%) A (7.1%) (28.8%) Aaa Short-Term (31.8%) Investments (5.6%) Aa (19.1%
Slide 31: Investment and Cash Flow Trends
Old Republic Investment and Cash Flow Trends $60 $6.00 Operating Cash Flow/Net Investment Income $55 $5.50 Cash & Invested Assets Per Share $50 $5.00 $45 $4.50 $40 $4.00 Per Share $35 $3.50 Cash & Invested Assets Per Share $30 $3.00 Operating Cash Flow Per Share $25 $2.50 $20 $2.00 Pre-Tax Net Inves
Slide 32: Capitalization Summary
Old Republic Capitalization Summary ($ in Millions) September 30, 2004 $ % Debt $142.7 3.6% Common Shareholders' Equity 3,791.6 96.4% Total Capitalization $3,934.3 100.0% Common Debt & Capitalization Trends: Equity Preferred September 30, 2004 96.4% 3.6% Year End, 2003 96.3% 3.7% Year End, 2002 95.7
Slide 33: Continued Corporate Goals
Old Republic Continued Corporate Goals • Stress General Insurance Premium Growth with Underwriting Profitability in Hard Market • Organic Growth in our Sphere of Competence • Expand Mortgage Guaranty Market Share with Profitable Book • Cross Selling Opportunities (Title & Credit Indemnity) • Stress
Slide 34: Investing and Managing for the Long Run
Old Republic Investing and Managing for the Long Run • Conservative Approach to Asset & Capital Management • Creating Long-Term Shareholder Value Through: – Growth of Profits with Least Volatility – Steady Book Value and Invested Asset Growth – Consistent Dividend Growth: • ORI: One of just 140 publ
Slide 35: Managing for the Long Run Leads to Consistent Profitable Growth
Old Republic Managing for the Long Run Leads to Consistent Profitable Growth 5 Years 10 Years • Compound Operating Earnings Growth 9.1% 12.3% • Average Return on Equity 13.3% 13.8% • Compound Annual Growth in Book Value Per Share 11.2% 10.5% • Compound Annual Growth in Invested Assets Per Share 8.8%
Slide 36: Book & Market Total Return vs. S&P Over The Long Run
Old Republic Book & Market Total Return vs. S&P 500 Over The Long Run 6,500 6,000 5,500 5,000 4,500 4,000 Unit Value S & P 500 Unit Value 3,500 3,000 2,500 ORI Book Value Unit Value 2,000 1,500 1,000 ORI Market Value Unit Value 500 0 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1
Slide 37: Business Update November 2004
International Corporation Business Update November 2004 (Published Results to September 30, 2004)
Old Republic International — Investor Presentation (November 2004) on 6ix