Old Republic International Corporation · NYSE:ORI
Old Republic International — Investor Presentation (November 2003)
37 slides from Old Republic International's investor presentation, November 2003
Slide 1: Analyst Presentation November 2003
In te rn atio n a l C o rp o ra tion Analyst Presentation November 2003 (Published Results to September 30, 2003)
Slide 2: Business Objectives
Old Republic Business Objectives Reach For: • Efficient Capital Allocation: Balanced Capital Intensities • Minimization of Earnings Volatility: Countercyclicality of Coverages and Industries Served Stay Within Our Sphere of Competence Through: • Concentration & Specialization in Few Industries & T
Slide 3: Business Objectives
Old Republic Business Objectives Emphasize: • Balance Sheet Strength: • Critical to Strong Financial Ratings • Strong Reserve Position to: • Ensure Earnings Quality • Pricing Validity • Disciplined Underwriting Through: • Specialization • Price Discipline • Consistent Cost Control • Steady Earnings
Slide 4: Business Model: Capital Allocation
Old Republic Business Model : Capital Allocation Actual / Longer Term Current Objective Commercial General Insurance Lines 51.9% 55.0% Housing Mortgage Guaranty 35.4% 35.0% Title 10.4% 7.0% Life & Health 2.3% 3.0% 100.0% 100.0% We're getting closer to objective. 4
Slide 5: Business Model: Insurance Coverages
Old Republic Business Model : Insurance Coverages Actual / Longer Term Objective Current For Capital General Insurance: Premiums (*) Premiums (*) Allocation Commercial Auto (Trucking) 18.6% 20.0% Workers' Compensation 11.6% 12.5% Commercial Multi Peril & Inland Marine 5.4% 6.0% Financial Indemnities
Slide 6: Business Model: Industry Focus
Old Republic Business Model: Industry Focus Actual / Longer Term Current (*) Objective (*) Trucking 19.7% 20.0% General Industry (**) 8.7% 10.0% Contractors 8.9% 9.5% Financial Indemnities 5.8% 7.5% General Aviation 4.2% 4.0% Energy 2.5% 2.5% Home & Auto Warranties 3.1% 3.5% Forestry & Timber 1.7% 2
Slide 7: Segmented Operating Revenue Trends
Old Republic Segmented Operating Revenue Trends ($ in Millions) Fiscal Year Operating Revenues: 1998 1999 2000 2001 2002 to 9/30/03 General $1,111.3 $1,053.2 $1,057.1 $1,195.0 $1,376.6 $1,530.4 Mortgage Guaranty 348.3 355.9 395.3 436.0 467.1 497.4 Title 578.8 597.1 518.7 648.9 836.5 1,072.5 Life & H
Slide 8: Segmented Pre-Tax Operating Income Trends
Old Republic Segmented Pre-Tax Operating Income Trends ($ in Millions) Fiscal Year Pre-tax Operating Income: 1998 1999 2000 2001 2002 to 9/30/03 General $192.0 $69.7 $116.9 $141.4 $182.1 $236.7 Mortgage Guaranty 155.3 177.3 240.1 261.9 267.7 269.9 Title 64.6 44.0 40.3 74.6 97.8 134.6 Life & Health 6
Slide 9: Pre-Tax Operating Margin Trends
Old Republic Pre-Tax Operating Margin Trends General Mortgage Title Insurance Guaranty Insurance Consolidated 1998 17.3% 44.6% 11.2% 19.5% 1999 6.6% 49.8% 7.4% 13.9% 2000 11.1% 60.7% 7.8% 19.3% 2001 11.8% 60.1% 11.5% 20.2% 2002 13.2% 57.3% 11.7% 19.9% Nine Mos. 02 13.2% 61.7% 11.6% 20.8% Nine Mos. 0
Slide 10: Summary of Consolidated Results
Summary of Consolidated Results ($ in Millions, Except Per Share Data) Nine Months Ended September 30, Fiscal Twelve Months Ended September 30, 2003 2002 % Change 2003 2002 % Change Net Premiums and Fees $2,158.9 $1,750.7 23.3% $2,832.2 $2,296.9 23.3% Net Investment Income 208.6 203.7 2.4% 277.6 273
Slide 11: General Insurance Group Financial Strength
General Insurance Group Financial Strength Current Ratings Assigned by: A.M. Standard • Major Operating Subsidiaries Best & Poor’s Moody’s - Old Republic Insurance Company A+ AA Aa2 - Bituminous Companies A+ AA Aa2 - Great West Casualty A+ AA Aa2 - Old Republic Surety A AA N/R • Total Assets: $6.4 B
Slide 12: General Insurance Group: Revenue by Major Coverage
General Insurance Group Gross Revenue Contributions by Major Coverage Nine Months 1998 1999 2000 2001 2002 2003 Commercial Auto (Trucking) 47.8% 47.1% 41.4% 37.9% 35.1% 34.4% Workers' Compensation 16.3% 14.9% 17.7% 19.4% 20.6% 21.4% Property 12.6% 12.1% 12.0% 11.3% 10.9% 10.0% Commercial Multi-Peril
Slide 13: General Insurance Group: Revenue by Industry Served
General Insurance Group Gross Revenue Contributions by Major Industry Served 1998 1999 2000 2001 2002 Transportation (Trucking) 50.5% 49.2% 41.6% 36.9% 35.4% General Industry 11.2% 10.3% 12.6% 16.5% 15.6% Contractors 10.5% 11.2% 13.4% 14.5% 15.9% Energy 5.0% 4.7% 5.8% 5.7% 4.5% Financial Indemnities
Slide 14: General Insurance Group Underwriting Trends
General Insurance Group Underwriting Trends 120% 120% 115% 115% 110% 110% Insurance Industry Composite Ratio 105% 105% 100% 100% Old Republic Composite Ratio 95% 95% 90% 90% 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 • The lower the ratio, the better the underwriting performance. Old Republic
Slide 15: Quarterly Loss and Combined Ratio Trends
General Insurance Group Quarterly Loss and Combined Ratio Trends 130% 130% 120% 120% Combined Ratio 110% 110% 100% 100% 90% 90% Loss Ratio 80% 80% 70% 70% 60% 60% 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 1999 | 2000 | 2001 | 2002 | 2003 (By Quarter) 15
Slide 16: General Insurance Group Underwriting Performance
General Insurance Group Underwriting Performance ($ in Millions) Calendar Years Nine Months 1998 1999 2000 2001 2002 2003 All Lines Combined Net Premiums Earned $903.1 $854.5 $859.8 $1,000.7 $1,182.3 $1,014.9 Composite Ratio 99.6% 112.2% 106.0% 102.0% 98.4% 93.6% Commercial Auto Net Premiums Earned
Slide 17: General Insurance Group Financial Performance
General Insurance Group Financial Performance ($ in Millions) Nine Months Ended September 30, 1998 1999 2000 2001 2002 2002 2003 Net Premiums Earned $902.5 $853.4 $857.8 $1,000.2 $1,184.1 $858.5 $1,012.0 Pre-Tax Income $192.0 $69.7 $116.9 $141.4 $182.1 $132.1 $186.7 Operating Cash Flow $73.8 $23.4 $
Slide 18: 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 19: 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 Single Largest Share of Old Republic’s Pre-Tax Income • Recently Survived a Record Refinance Boom! 19
Slide 20: Mortgage Guaranty Group Claims Trends
Mortgage Guaranty Group Claims Trends Nine Months 1998 1999 2000 2001 2002 2003 GAAP Basis Statistics: Incurred Loss Ratio 26.9% 22.3% 15.0% 16.1% 14.1% 19.5% Paid Loss Ratio 21.1% 16.9% 15.1% 13.4% 16.1% 21.3% Delinquency Rates: Traditional Primary 2.6% 2.8% 2.5% 2.8% 3.4% 3.8% Bulk NA NA NA 0.3% 3
Slide 21: 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% $5 of Total NIW 10% Bulk Volume $0 0% 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 2001 | 2002 | 2003 21
Slide 22: Persistency & Net Run-off
Mortgage Guaranty Group Persistency & Net Run-off 100% $12.0 90% $10.0 80% Persistency * 70% $8.0 ($ in Bllions) 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 1998 | 1999 | 2000 | 2001 | 2002
Slide 23: 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 2.0% $3.0 Percent of Total $0.0 0.0% 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 2001 |
Slide 24: Mortgage Guaranty Group Market Analysis
Mortgage Guaranty Group Market Analysis ($ in Billions) 9 mos. 1998 1999 2000 2001 2002 2003 Mortgage Rates (Average 30-Year Fixed) 6.94% 7.43% 8.06% 6.97% 6.54% 5.79% Total Residential Mortgage Originated in U.S. $1,450 $1,310 $1,048 $2,058 $2,510 $2,806 * Mortgage Insurance Industry Primary Volume
Slide 25: Mortgage Guaranty Group Financial Performance
Mortgage Guaranty Group Financial Performance ($ in Millions) Nine Months Ended September 30, 1998 1999 2000 2001 2002 2002 2003 Operating Revenues $348.3 $355.9 $395.4 $436.1 $467.1 $344.8 $375.1 Pre-Tax Income $155.3 $177.3 $240.1 $261.9 $267.7 $212.7 $214.9 Operating Cash Flow $158.4 $192.9 $221.
Slide 26: Mortgage Guaranty Group Outlook
Mortgage Guaranty Group Outlook • Continuation of Historically Low Mortgage Rates + Good Purchase Market, Lots of First Time Buyers, but - Need Job Growth & High Consumer Confidence + Low Claims Development & Severity • Continued Increase in Loss Ratio + Rising from Historic Lows + Robust Market Pro
Slide 27: Title Insurance Group Profile
Title Insurance Group Profile • Title Insurance Required for Virtually Every Real Estate Transaction – Residential and Commercial – Sales and Refinancings • Operates in 49 States – 240 Branch, Subsidiary and Agency Servicing Offices – Volume Approximately 55% from Agents/ 45% from Direct Operations
Slide 28: Title Insurance Group Financial Performance
Title Insurance Group Financial Performance ($ in Millions) Nine Months Ended September 30, 1998 1999 2000 2001 2002 2002 2003 Net Premiums and Fees Earned $558.2 $573.8 $494.0 $625.3 $813.4 $574.1 $809.3 Pre-Tax Income $64.6 $44.0 $40.3 $74.6 $97.8 $68.4 $105.2 Operating Cash Flow $69.7 $36.0 $42.9
Slide 29: Title Insurance Group Outlook and Strategy
Title Insurance Group Outlook and Strategy • 2003 Already a Record Year – Anticipate Downturn in Revenues as Residential Refinancings Slow • Challenge is to Manage Staff and Expense Levels in Tandem with Top Line Movement • Focus on Technology Initiatives – Automation and Imaging • Expand Cross Sell
Slide 30: Investment Portfolio Profile
Old Republic Investment Portfolio Profile • Invest in Context of the Insurance Business • Main Thrust: – Protect Capital Through Plain Vanilla, High Quality Portfolio – Assure Stable Growth of Investment Income – Little Emphasis on Capital Gains • Cash and Invested Assets at September 30, 2003: $6.8
Slide 31: September 30, 2003 Investment Portfolio
Old Republic September 30, 2003 Investment Portfolio Credit Quality Distribution Investment of Fixed-Maturity Securities Portfolio Composition Baa Tax-Exempt (16.6%) Bonds Other (19.2%) (1.5%) Taxable Equity Bonds Securities (66.6%) (7.5%) Aaa (28.6%) A (34.5%) Short-Term Investments (6.7%) Aa (18.8
Slide 32: Investment and Cash Flow Trends
Old Republic Investment and Cash Flow Trends $65 $6.50 Operating Cash Flow/Net Investment Income $60 $6.00 $55 $5.50 Cash & Invested Assets $50 $5.00 Per Share $45 $4.50 Per Share Cash & Invested Assets Per Share $40 $4.00 $35 $3.50 $30 $3.00 Operating Cash Flow Per Share $25 $2.50 $20 $2.00 Pre-Tax
Slide 33: Capitalization Table
Old Republic Capitalization Table ($ in Millions) September 30, 2003 Debt $139.0 3.7% Common Shareholders' Equity 3,571.0 96.3% Total Capitalization $3,710.0 100.0% 33
Slide 34: Corporate Goals In Focus
Old Republic Corporate Goals In Focus • 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 T
Slide 35: Why Invest in Old Republic
Why Invest in Old Republic • Creating Long-Term Shareholder Value Through: – Consistent Growth of Profits – Steady Book Value and Invested Asset Growth – Consistent Dividend Growth: • ORI: One of just 143 public companies with 22 or more years of dividend increases (*) • Diversified, Countercyclical
Slide 36: Creating Shareholder Value Through Consistent Profitable Growth
Creating Shareholder Value Through Consistent Profitable Growth 5 Years 10 Years • Compound Operating Earnings Growth 6.4% 11.4% • Average Return on Equity 13.3% 13.9% • Compound Annual Growth in Book Value Per Share 10.9% 10.7% • Compound Annual Growth in Invested Assets Per Share 7.9% 5.8% • Compo
Slide 37: Performance: Book & Market Total Return vs. S&P
Old Republic Performance Book & Market Total Return vs. S&P 500 6,000 5,500 5,000 4,500 S & P 500 Unit Value 4,000 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 2 0 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996
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