Old Republic International Corporation · NYSE:ORI
Old Republic International — Investor Presentation (November 2005)
45 slides from Old Republic International's investor presentation, November 2005
Slide 1: Managing for the Long Run
MANAGING FOR THE LONG RUN Business Update November 2005
Slide 2: Safe Harbor Statement
Safe Harbor Statement Historical data pertaining to the operating performance, 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,
Slide 3: Old Republic's Long Term Performance
Old Republic’s Long Term Performance Book and Market Total Return vs. S&P 500 22,500 ORI Book Value Unit 20,000 Value 17,500 ORI Market Value 15,000 Unit Value Unit Value 12,500 10,000 7,500 5,000 S & P 500 2,500 Unit Value 0 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 3 5 Se 200 00 19 19
Slide 4: Business Objectives & Strengths
Old Republic Business Objectives & Strengths Underwriting Balance Sheet Strengths Strengths 9 Balanced Book = 9 Quality Asset Base Earnings Sustainability 9 Strong Reserve 9 Focus On Core Position Industries 9 Ample Capital 9 Price Discipline 9 Financial Ratings 9 Cost Control 4
Slide 5: Key Insurance Subsidiaries Financial Strength
Key Insurance Subsidiaries Financial Strength Most Current Ratings Assigned by: A.M. Standard Best Fitch & Poor's Moody's General Insurance: – Bituminous Casualty A+ AA AA Aa2 – Great West Casualty A+ AA AA Aa2 – International Business & Mercantile REassurance Company A N/R AA N/R – Old Republic Ins
Slide 6: Mix of Business by Economic Sector
Old Republic Mix of Business by Economic Sector $4,500 Gross Premium Written and Fees ($ in Millions) $4,000 American $3,500 Transportation $3,000 American $2,500 Businesses & Institutions $2,000 American $1,500 Housing $1,000 Other $500 $0 1980 1990 2004 6
Slide 7: Segmented Operating Revenue Trends
Old Republic’s Business Balance Segmented Operating Revenue Trends ($ in Millions) Fiscal Years Ended December 31, Year Ended % Change Operating Revenues: 2000 2001 2002 2003 2004 9/30/2005 2000 - 2005 General $1,057.1 $1,195.0 $1,376.6 $1,572.7 $1,822.5 $1,987.3 88.0% Mortgage Guaranty 395.3 436.0
Slide 8: Segmented Pretax Operating Income Trends
Old Republic’s Business Balance Segmented Pretax Operating Income Trends ($ in Millions) Fiscal Years Ended December 31, Year Ended % Change Pretax Operating Income (Loss): 2000 2001 2002 2003 2004 9/30/2005 2000 - 2005 General $117.6 $141.5 $182.1 $258.9 $333.0 $346.9 195.0% Mortgage Guaranty 240.1
Slide 9: Pretax Operating Margin Trends
Old Republic Pretax Operating Margin Trends* Mortgage Years Ended December 31, General Guaranty Title Consolidated 2000 11.1% 60.7% 7.8% 19.4% 2001 11.8% 60.1% 11.6% 20.3% 2002 13.2% 57.3% 11.7% 19.9% 2003 16.5% 55.4% 11.5% 20.2% 2004 18.3% 45.8% 5.9% 17.5% Nine Months Ended September 30, 2004 18.3%
Slide 10: Capital Allocation
Old Republic Capital Allocation Latest 3 Years' Average Current Pretax As of Long Term Operating Operating Sept. 30, 2005 Objective Revenues Income General Insurance 54.8% 50.0% - 55.0% 50.6% 42.1% Housing Mortgage Guaranty 33.1% 30.0% - 35.0% 15.4% 41.8% Title 10.0% 7.0% - 8.0% 32.0% 15.8% Life & H
Slide 11: Investments: Funding Liabilities & Protecting Capital
Old Republic Investments Funding Liabilities & Protecting Capital (As of September 30, 2005) Credit Quality Distribution of Fixed-Maturity Securities Investment Portfolio Composition Baa Tax-Exempt (16.8%) Bonds All Other (1.0%) (23.5%) Taxable Bonds (64.3%) A (27.2%) Equity Securities (5.9%) Aaa (3
Slide 12: 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 Cash & Invested Assets $35 $3.50 $30 $3.00 Operating Cash Flow $25 $2.50 $20 $2.00 $15 $1.50 Pretax Net Investment Incom
Slide 13: Investments, Cash Flow, and Shareholders' Equity
Old Republic Investments, Cash Flow, and Shareholders’ Equity $10,000 $1,000 $9,000 $900 Operating Cash Flow ($ in Millions) Shareholders' Equity ($ in Millions) $8,000 $800 Cash & Invested Assets and $7,000 $700 $6,000 $600 $5,000 $500 $4,000 $400 $3,000 $300 $2,000 $200 $1,000 $100 $0 $0 1995 1996
Slide 14: General Insurance
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Slide 15: General Insurance
Old Republic General Insurance Î What we do – Provide property and liability insurance mostly to niche commercial markets – Distribute products through 10 operating subsidiaries – Underwriting focused Î General Insurance Drivers – Strong US economy – Specialization – Rate adequate environment – Well
Slide 16: General Insurance - Gross Revenues by Major Coverage
General Insurance - Gross Revenues by Major Coverage December 1999 September 2005 12.1% 8.6% 9.8% 8.1% 34.5% 47.1% 17.8% 24.2% 22.9% 14.9% Commercial Auto Workers’ Compensation Other Specialty Coverages General Liability Property 16
Slide 17: General Insurance Underwriting Performance
General Insurance Underwriting Performance* 125% 125% 115% 115% Insurance Industry Composite Ratio** 105% 105% 95% 95% Old Republic Composite Ratio*** 85% 85% 75% 75% 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Sept. 2005 * The lower the composite ratio, the better the underwriting perfor
Slide 18: General Insurance Underwriting Performance
General Insurance Underwriting Performance 130% 130% 120% 120% 110% 110% Composite Ratio 100% 100% 90% 90% 80% 80% Loss Ratio 70% 70% 60% 60% 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 2000 | 2001 | 2002 | 2003 | 2004 | 2005 18
Slide 19: General Insurance Issues and Opportunities
General Insurance Issues and Opportunities Î Issues – – Modest rate softening – TRIA – Growth sustainability Î Opportunities – – Relatively stable competition – Capacity to grow certain coverages – Geographic and distribution opportunities 19
Slide 20: Mortgage Guaranty
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Slide 21: Mortgage Guaranty
Old Republic Mortgage Guaranty Î Supports US residential real estate market – Substitute for homebuyers down payment – Protects investors from default costs – Provides capital relief and supports capital markets executions Î 11.6% national market share* Î Strong history of earnings growth Î Well pos
Slide 22: Mortgage Guaranty Underwriting Performance
Mortgage Guaranty Underwriting Performance 70% 70% 60% 60% 50% 50% Composite Ratio 40% 40% Expense Ratio 30% 30% 20% 20% Loss Ratio 10% 10% 0% 0% 2000 2001 2002 2003 2004 Sept. 2005 22
Slide 23: Mortgage Guaranty New Insurance Written
Mortgage Guaranty New Insurance Written New Insurance Written ($ in Billions) $40 $35 $30 $25 $20 $15 $10 $5 $0 2001 2002 2003 2004 2005 Fiscal Traditional Primary Bulk Other 23
Slide 24: Mortgage Guaranty Net Risk In Force
Mortgage Guaranty Net Risk In Force Total Net Risk In Force ($ in Billions) $18.0 $16.0 $14.0 $12.0 $10.0 $8.0 $6.0 $4.0 $2.0 $0.0 2001 2002 2003 2004 Sept. 2005 Total Traditional Primary Bulk Other 24
Slide 25: Issues and Opportunities: Housing bubble debate
Mortgage Guaranty Issues and Opportunities Housing bubble debate: Annual home price growth and total risk in force WA ME MT ND MN VT MI NH OR WI NY MA ID SD CT RI MI WY NJ IA PA NE DE NV OH MD IN DC IL WV VA UT CO KS MO KY CA NC TN AZ SC NM OK AR MS AL GA TX LA FL AK Total Direct Risk in Force 0.0%
Slide 26: Mortgage Guaranty Issues and Opportunities
Mortgage Guaranty Issues and Opportunities Î Housing demographics – Positive long term trends Î Subordinate financing – Improved regulatory guidance Î Increasing premium rates – Ratable vs. difficult to rate risks Î GSE legislation and MI tax deductibility 26
Slide 27: Mortgage Guaranty Issues and Opportunities
Mortgage Guaranty Issues and Opportunities Î 2006 mortgage market outlook – Trends and volume Î 2006 RMIC focus – Profitably improving share in bulk and traditional primary markets 27
Slide 28: Title Insurance
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Slide 29: Title Insurance
Old Republic Title Insurance Î What we do – Title insurance required for virtually every real estate transaction – Loss prevention – Operates in 49 states – Ranks 5th nationally with approximately 6% market share Î Title Insurance Drivers – Housing trends • Transaction driven, interest rate sensitiv
Slide 30: Title Insurance Housing Trends/Premiums & Fees Production
Title Insurance Housing Trends/Premiums & Fees Production 12 $1,200 Nationwide Housing Sales (in Millions) Net Premiums and Fees ($ in Millions) 10 $1,000 8 $800 6 $600 4 $400 2 $200 0 $0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Nationwide Housing Sales Net Premiums and Fees 30
Slide 31: Title Insurance Production Sources
Title Insurance Production Sources ($ in Millions) $1,200 $1,000 $800 $600 $400 $200 $0 2000 2001 2002 2003 2004 2005 Fiscal Direct Premiums & Fees Agency Premiums 31
Slide 32: Title Insurance Underwriting Performance
Title Insurance Underwriting Performance 120% 120% 100% 100% Composite Ratio 80% Expense Ratio 80% 60% 60% 40% 40% 20% 20% Loss Ratio 0% 0% 2000 2001 2002 2003 2004 Sept. 2005 32
Slide 33: Title Insurance Issues and Opportunities
Title Insurance Issues and Opportunities Î Issues – Housing trends • New originations, refinancing volume, price appreciation – Increased regulatory environment • Captive reinsurance/affiliated business arrangements • RESPA reform Î Opportunities – Continued agency emphasis – Expand cross selling ef
Slide 34: To Summarize
To Summarize Î Retain our focus on the strengths that have enabled our success to date: Underwriting Balance Sheet Strengths Strengths 9 Balanced Book = 9 Quality Asset Base Earnings Sustainability 9 Strong Reserve 9 Focus on Core Position Industries 9 Ample Capital 9 Price Discipline 9 Financial Ra
Slide 35: Old Republic's Long Term Performance
Old Republic’s Long Term Performance Book and Market Total Return vs. S&P 500 22,500 ORI Book Value Unit 20,000 Value 17,500 ORI Market Value Unit Value 15,000 Unit Value 12,500 10,000 7,500 5,000 S & P 500 2,500 Unit Value 0 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 3 5 Se 200 00 19 19
Slide 36: Supplemental Schedules
Ke wy i Meet He a® Supplemental Schedules
Slide 37: Summary of Consolidated Results
Old Republic Summary of Consolidated Results ($ in Millions, Except Per Share Data) Nine Months Ended September 30, Fiscal Years Ended September 30, Operating Revenues 2005 2004 % Change 2005 2004 % Change Net Premiums and Fees $2,500.4 $2,303.7 8.5% $3,312.8 $3,080.8 7.5% Net Investment Income 229.
Slide 38: Business Model: Industry Focus
Old Republic Business Model: Industry Focus Actual / Longer Term Current (*) Objective Trucking 20.0% 20.0% General Industry (**) 10.9% 10.0% Contractors 8.2% 9.5% Financial Indemnities 6.4% 7.5% General Aviation 3.9% 4.0% Energy 2.2% 2.5% Home & Auto Warranties 3.2% 3.5% Forestry & Timber 1.7% 2.0%
Slide 39: General Insurance Financial Performance
Old Republic General Insurance Financial Performance ($ in Millions) Nine Months Ended Years Ended December 31, September 30, 2000 2001 2002 2003 2004 2004 2005 Net Premiums Earned $857.8 $1,000.2 $1,184.1 $1,379.5 $1,623.0 $1,194.2 $1,349.9 Pretax Operating Income $117.6 $141.5 $182.1 $258.9 $333.0
Slide 40: General Insurance Gross Revenue Contributions by Major Coverage
Old Republic General Insurance Gross Revenue Contributions by Major Coverage Nine Months Ended Years Ended December 31, September 30, 2000 2001 2002 2003 2004 2004 2005 Commercial Auto (Trucking) 41.4% 37.9% 35.1% 33.4% 32.7% 33.3% 34.5% Workers' Compensation 17.7% 19.4% 20.6% 22.6% 24.0% 24.0% 22.9
Slide 41: General Insurance Revenue Contributions by Major Industry Served
Old Republic General Insurance - Gross Revenue Contributions by Major Industry Served Years Ended December 31, 2000 2001 2002 2003 2004 Transportation (Trucking) 41.6% 36.9% 35.4% 34.5% 34.1% General Industry (*) 12.6% 16.5% 15.6% 16.1% 18.6% Contractors 13.4% 14.5% 15.9% 15.3% 14.1% Energy 5.8% 5.7
Slide 42: General Insurance Underwriting Performance
Old Republic General Insurance Underwriting Performance** ($ in Millions) Nine Months Ended Years Ended December 31, September 30, 2000 2001 2002 2003 2004 2004 2005 All Lines Combined Net Premiums Earned $859.8 $1,000.7 $1,182.3 $1,382.7 $1,626.0 $1,197.7 $1,352.6 Composite Ratio 106.0% 102.0% 98.4
Slide 43: Mortgage Guaranty Financial Performance
Old Republic Mortgage Guaranty Financial Performance ($ in Millions) Nine Months Ended Years Ended December 31, September 30, 2000 2001 2002 2003 2004 2004 2005 Operating Revenues $395.4 $436.1 $467.1 $498.6 $489.9 $366.6 $386.6 Pretax Operating Income $240.1 $261.9 $267.7 $276.4 $224.5 $170.7 $188.
Slide 44: Mortgage Guaranty Operating Statistics
Old Republic Mortgage Guaranty Operating Statistics ($ in Millions) Nine Months Ended Years Ended December 31, September 30, 2000 2001 2002 2003 2004 2004 2005 New Insurance Written: Traditional Primary $14,929.7 $25,085.4 $30,809.6 $37,255.8 $24,749.4 $19,080.7 $15,585.5 Bulk 35.3 2,614.4 5,130.0 6
Slide 45: Title Insurance Financial Performance
Old Republic Title Insurance Financial Performance ($ in Millions) Nine Months Ended Years Ended December 31, September 30, 2000 2001 2002 2003 2004 2004 2005 Net Premiums and Fees Earned $494.0 $625.3 $813.4 $1,103.8 $1,025.2 $759.8 $775.5 Pretax Operating Income $40.2 $75.0 $97.6 $129.6 $62.5 $65.
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