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Old Republic International: At Financial Relations Board

The following excerpt is from the company's SEC filing.

A. C. Zucaro: Chairman & CEO

Analysts/Investors: Marilynn Meek

(312) 346-8100

(212) 827-3773

OLD REPUBLIC REPORTS RESULTS FOR THE THIRD QUARTER AND FIRST NINE MONTHS OF 2015

Old Republic International Corporation (NYSE; ORI) today reported much higher period-over-period operating results for this year's third quarter and first nine months. Pretax operating income comparisons were enhanced by greater General Insurance underwriting and investment income, and by the record-setting quarterly and year-to-date performance of Old Republic’s Title Insur ance business. 2015 year-to-date consolidated net income, however, was affected by lower realized gains from sales of investment securities by comparison to the substantial gains registered in 2014.

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

Financial Highlights (a)

Quarters Ended

September 30,

Nine Months Ended

Operating revenues:

General insurance

2,468.5

2,315.4

Title insurance

1,523.7

1,309.8

Corporate and other

Subtotal

1,442.0

1,298.0

4,019.5

3,676.2

RFIG run-off business

1,504.2

1,369.4

4,208.9

3,892.7

Pretax operating income (loss):

(12.5)

Realized investment gains (losses):

From sales

From impairments

Net realized investment gains (losses)

Consolidated pretax income

Income taxes (credits)

Net income (loss)

Components of diluted earnings per share:

Net operating income (loss):

(0.03)

(0.01)

Cash dividends paid per share

0.1850

0.1825

0.5550

0.5475

Ending book value per share

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

(b)Reflects the transfer of accident insurance business from a life and accident subsidiary to a general insurance affiliate resulting in a

$5.5 and $24.5 reduction in premiums during the third quarter and first nine months of 2015, respectively.

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 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 timing of realized investment gain or loss recognition can be highly discretionary due to such factors as 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 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 these 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 driving operating performance for the periods reported upon.

General Insurance Group

Quarters Ended September 30,

Nine Months Ended September 30,

Change

Net premiums earned

2,157.2

2,034.8

Net investment income

Other income

Benefits and claim costs

1,588.5

1,548.9

Sales and general expenses

Interest and other costs

Total operating expenses

2,204.3

2,112.9

Pretax operating income (loss)(*)

Claim ratio

Expense ratio

Composite underwriting ratio

100.2%

(*) In connection with the run-off mortgage guaranty ("MI") and consumer credit indemnity ("CCI") combination, $12.4 and $37.4 of pretax operating losses for the third quarter and first nine months of 2015, and $11.7 and $99.0 of pretax operating losses for the third quarter and first nine months of 2014, 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 such that 100% of the CCI run-off business is reported in the RFIG run-off segment.

2015 general insurance operating earnings benefitted from more positive underwriting performance. Earned premium revenues rose for most insurance coverages with production spurred by both new business and a continuation of high renewal rates for existing business.

Earned premiums growth was accompanied by relatively lower expense provisions for current and prior years’ claim occurrences. Loss development during this year’s first nine months was more restrained relative to previously established reserves. The effect was to increase the claim ratio of both the latest quarter and year-to-date periods by 1.0 percentage point

By contrast, 2014 loss development added 4.0 and 1.8 percentage points to last year's third quarter and nine months claim ratios, respectively. 2015 production and general operating expenses held fairly steady in context of revenue trends. Year-to-date

the combination of these factors led to the more positive composite underwriting ratios shown in the above table

Net investment income advanced by 17.5 and 12.2 percent in this year’s third quarter and first nine months, respectively. In recent quarters

this revenue source has trended higher by virtue of a rising invested asset base and enhanced yields most significantly produced by a high quality common stock portfolio.

Title Insurance Results –

Earnings trends in this year’s third quarter and year-to-date periods continued in a highly positive vein as the table below shows.

Title Insurance Group

Net premiums and fees earned

1,497.8

1,285.3

Claim costs

1,318.4

1,166.9

1,405.0

1,250.8

101.2%

The substantial bottom line improvement in this year’s first nine months was attributable to the very good performance for this segment’s basic underwriting and related services functions. Stronger housing and commercial property transactions together with continued market share strength led to the significant percentage growth of operating revenues. Net investment income gained on the strength of greater yields on a slightly larger bond and stock investment portfolio. Operating results were buoyed by lower claim and operating costs relative to premiums and fees revenues.

RFIG Run-off Business Results...


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