Old Republic Reports 10th Consecutive Rise In Quarterly Operating Earnings
October 25, 2002
Common Shareholders' Equity Crosses The Three Billion Dollar Mark
CHICAGO, /PRNewswire-FirstCall/ -- Old Republic International Corporation (NYSE: ORI - News), reported greater earnings for this year's third quarter and first nine months. The Company's three major segments contributed to the performance.
Net Income and Net Operating Income
Net income in the third quarter of 2002 totaled $96.3 million, or 79 cents per share, vs. $82.4 million, or 69 cents per share, for the year-ago quarter. Net operating income, which excludes realized investment gains or losses, was $98.3 million, or 81 cents per share, compared to $84.8 million, or 71 cents per share in the year-ago period.
For the first nine months of 2002, net income was $299.4 million, or $2.46 per share, vs. $257.9 million, or $2.14 per share, for the first nine months of 2001. Net operating income for the first nine months of 2002 was $292.3 million, or $2.40 per share, compared to $245.3 million, or $2.04 per share, in the same year-to-date period of 2001. Second quarter and year-to- date tax expense was reduced and net earnings were enhanced by tax and related interest recoveries of $10.9 million, or 9 cents per share, due to the favorable resolution in this year's second quarter of tax issues dating back to the Company's 1987 tax return.
Realized investment gains or losses, a source of revenues and net income affected by the timing of securities sales or write downs, reflected a pretax realized loss of $3.2 million in this year's third quarter versus a pretax realized loss of $2.4 million in the same quarter of 2001. Year-to-date pretax realized gains of $10.9 million were posted in 2002, compared to pretax realized gains of $20.6 million for the same period of 2001.
Consolidated operating revenues for this year's third quarter amounted to $704.3 million, compared to $602.0 million in the same quarter of 2001. Net premiums and fees were $623.3 million in the current year's third quarter vs. $524.4 million in the same period one year ago. Consolidated net investment income of $68.8 million for the third quarter of 2002 was basically flat when compared to the same quarter of 2001.
For the first nine months of 2002, consolidated operating revenues were $1.98 billion, compared to $1.71 billion for the first nine months of 2001. Net premiums and fees for the first nine months of 2002 were $1.75 billion compared to $1.48 billion in the same year-ago period. Consolidated net investment income for the year-to-date period in 2002 was $203.7 million, also relatively flat when compared to the same period of 2001. While positive operating cash flow has been additive to Old Republic's invested asset base, a fairly consistent drop in interest rates during recent times has had a negative impact on investment yields.
General Insurance Group
Old Republic's property and liability insurance business registered pretax operating income of $46.8 million in this year's third quarter; this compares to $36.1 million earned in the same period of 2001. Net premium revenues in the latest quarterly period rose by 17.8 percent to $303.4 million, compared to $257.7 million one year ago. The statutory composite underwriting ratio for this year's third quarter was 98.6 percent vs. 100.3 percent in the same quarter one year ago.
For the first nine months of 2002, pretax operating income totaled $132.1 million compared to $107.7 million for the like period of 2001. Net premiums earned were $858.5 million vs. $734.2 million a year ago, for an increase of 16.9 percent; the composite underwriting ratio was 99.1 percent compared to 101.5 percent in the same period last year.
Improved general insurance underwriting performance in this year's third quarter and year-to-date period resulted largely from the beneficial effect of a continued rise in premium rates for most of the insurance coverages encompassed by this business segment. While a continuation of relatively high claims severity, inflation-driven increases in the cost of medical care and repairs pertaining to most insurance coverages, and greater claim frequency in the workers' compensation line in particular is expected, the Company believes that strengthened underwriting standards and higher premium rates should provide greater offsetting benefits for the duration of the currently positive underwriting cycle.
Mortgage Guaranty Group
Pretax mortgage guaranty operating income in the third quarter increased by 7.5 percent to $70.8 million from $65.9 million in the same period one year ago. Net premiums earned in the latest quarter were $95.9 million, up 10.3 percent from $86.9 million in the year-ago quarter.
For the first nine months of 2002, pretax mortgage guaranty operating income totaled $212.7 million vs. $193.1 million in the first nine months of 2001, an increase of 10.2 percent. Net premiums earned totaled $278.6 million, an increase of 6.4 percent from $262.0 million earned in the same period of 2001.
For the third quarter and year-to-date periods of 2002, a high level of refinancing activity enhanced mortgage guaranty new insurance written volume, producing growth of 45.2 percent and 46.3 percent, respectively, in comparison with 2001. Year to date, direct primary insurance in force has risen by nearly 11.3 percent to $73.2 billion as of September 30, 2002. Growing mortgage guaranty investment income in both the third quarter and first nine months of 2002 reflected a rising invested asset base, though the aforementioned drop in current investment yields has inhibited greater growth of this revenue source.
The composite underwriting ratio was relatively stable for the periods being reported upon. It amounted to 43.2 percent and 41.3 percent for the third quarter and first nine months of 2002, respectively, and 42.3 percent and 44.1 percent for the same periods of 2001, respectively. The loss ratio has been lower in each quarterly period of 2002 compared to 2001, due to a decline in claim provisions driven principally by a decline in expected claim severity. The expense ratio for this year's third quarter and first nine months was moderately higher than the equivalent ratios for 2001 due to a special charge of $4.8 million established in the third quarter of 2002 to cover estimated legal and other costs of certain class action litigation.
Title Insurance Group
The Company's Title Insurance Group posted a substantial rise in pretax operating income to $26.9 million in the third quarter of 2002; this compares to $21.3 million earned in the same period in 2001. Premium and fee revenues rose by 25.7 percent to $209.2 million in this year's third quarter. For the first nine months of 2002, premium and fee revenues grew by 28.0 percent, while pretax operating income increased to $68.4 million from $52.8 million in the like period of 2001.
For each period of the current year, title insurance underwriting results were aided by growing premiums and fees resulting mostly from a high level of mortgage refinancing activity, and by the continuation of relatively low claim ratios accompanied by a drop in the ratio of production and operating costs.
Life and Health Group
Life and health operating revenues were $16.4 million in this year's third quarter and $44.5 million in the first nine months of the year. Pretax operating income was $1.3 million in the third quarter and $4.7 million in the first nine months of this year. Moderately higher claim costs were incurred in this year's third quarter. These results compare to pretax operating income of $1.2 million and $4.0 million in the same respective periods of 2001.
Cash, Invested Assets and Shareholders' Equity
Cash and invested assets at September 30, 2002, totaled $5.92 billion, or $49.15 per share, vs. $5.58 billion, or $46.96 per share, at December 31, 2001, and $5.50 billion, or $46.28 per share, at September 30, 2001. Consolidated operating cash flow grew by 14.4 percent to $451.4 million for the first nine months of 2002. Consolidated cash flow growth in this year's first nine months resulted mostly from significant contributions by the Company's general insurance segment, while mortgage guaranty and title insurance provided a greater boost when compared to 2001 periods.
Old Republic's investment portfolio reflects a current allocation of approximately 85 percent in fixed-income investments and 8 percent in equities. As has been the case for many years, it contains little or no exposure to real estate investments, mortgage-backed securities, derivatives, junk bonds, private placements or mortgage loans. During the current year, a moderately higher commitment has been made to equity securities that typically yield lower current income.
Common shareholders' equity grew past the $3 billion mark at September 30, 2002. This new level of financial solidity compares to $2.78 billion posted as of December 31, 2001, and $2.68 billion at September 30, 2001. Book value per share was $25.28 at the end of the third quarter of 2002, vs. $23.40 at year-end 2001, and $22.59 at September 30, 2001.
Source: Old Republic International Corporation
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