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Old Republic's Second Quarter Earnings Strength Anchored By Continued General Insurance Income Growth

July 30, 2004

Consolidated assets cross the $10 billion level

CHICAGO, /PRNewswire-FirstCall/ -- Old Republic International Corporation's (NYSE: ORI), consolidated net operating income per share for this year's second quarter was 63 cents, compared to 62 cents in the same period of 2003. For this year's first half, net operating earnings per share amounted to $1.15 versus $1.22 earned in last year's first half. Consolidated pretax earnings in this year's first half were affected adversely by the expensing of stock option benefits of $7.1 million, (or 2 cents per share after tax) of which $5.6 million represented a charge for a non-recurring vesting acceleration of stock option costs. Stock option expense charges reduced earnings per share by less than 1 cent per share in the second quarter and first half of 2003.

Quarters Ended
June 30
Six Months Ended
June 30
2004 2003 Cha
nge
   2004 2003 Cha
nge
Total Revenue $867.1 $814.6 6.4%   $1,689.5 $1,553.7 8.7%
Net Operating
  Income
$115.7 $113.2 2.2%   $212.4 $222.0 -4.3%
Net Income $119.0 $121.5 -2.1%   $225.4 $225.9 -0.2%
               
Diluted Earnings Per Share(*):            
Net Operating
  Income
$0.63 $0.62 1.6%   $1.15 $1.22 -5.7%
Net Income $0.65 $0.66 -1.5%   $1.22 $1.23 -0.8%

(*)2003 per share data reflect retroactive adjustments for the 50% stock dividend issued in December 2003.

Net Income and Net Operating Income

Net income for the second quarter of 2004 totaled $119.0 million, or 65 cents per share, versus $121.5 million, or 66 cents per share for the year-ago quarter. Net operating income, which excludes realized investment gains or losses, was $115.7 million, or 63 cents per share, compared to $113.2 million, or 62 cents per share in the same quarter of 2003.

For this year's first half, net income was $225.4 million, or $1.22 per share, versus $225.9 million, or $1.23 per share, for the first six months of 2003, while net operating income was $212.4 million, or $1.15 per share in 2004, compared to $222.0 million, or $1.22 per share in 2003.

To aid in the investment analysis of Company results, both net operating income and net income figures are given as they highlight the impact of certain accounting rules or securities market-driven considerations that affect the recording of investment gains or losses and contribute to lessened period-to-period comparability. The realization of investment gains or losses can be highly discretionary and arbitrary due to such factors as the timing of individual securities sales, 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. In particular, write-downs of securities deemed other than temporarily impaired are affected by some of these factors as well as industry or issuer-specific developments that can call for the recognition of a permanent loss of market value or non- recoverability of asset cost.

The major components of pretax operating income cited herein, and consolidated GAAP net income were as follows for the periods shown:

($ in Millions)
Quarters Ended
June 30
Six Months Ended
June 30
2004 2003 2004 2003
         
Pretax operating income (loss):        
   General $83.4 $62.4 $157.7 $121.8
   Mortgage Guaranty 59.5 69.8 116.9 145.8
  Title 31.1 36.4 44.4 62.2
   Corporate and other (1.6) (1.9) (4.1) (2.5)
    Sub-total 172.3 166.8 314.9 327.4
         
Realized investment gains (losses):      
  From sales 4.9 12.7 20.5 15.5
  From impairments (9.5)      
     Sub-total 4.9 12.7 20.5 6.0
         
Consolidated pretax income 177.3 179.5 335.5 333.4
  Income taxes 58.1 57.9 109.9 107.3
   Net income $119.0 $121.5 $225.4 $225.9

Consolidated Revenues

Consolidated operating revenues in this year's second quarter rose by 7.5 percent to $862.1 million, from $801.9 million in the same quarter of 2003. Net premiums and fees were $780.8 million in the second quarter versus $717.2 million in the year-ago period, an increase of 8.9 percent. Consolidated net investment income was $71.2 million for the second quarter of 2004, 1.7 percent higher when compared to the same period of the preceding year.

For the first half of 2004, consolidated operating revenues were $1.66 billion compared to $1.54 billion for the first six months of 2003. Net premiums and fees for the first six months of 2004 were $1.50 billion compared to $1.38 billion in the same year-ago period. Consolidated net investment income for this year's first half was $141.8 million, up by 1.7 percent.

While the Company's invested asset base has continued to grow as a result of stronger operating cash flows, a general downtrend in interest rates in the past several years has inhibited a corresponding growth in investment income.

General Insurance Group Results

Old Republic's General Insurance Group, which underwrites mostly commercial property and liability insurance coverages, generated a 33.6 percent increase over 2003 in pretax operating income for this year's second quarter to $83.4 million. Net premiums earned in the second quarter of 2004 rose by 16.9 percent to $396.2 million, from $339.1 million a year ago. The composite underwriting ratio for this year's second quarter was 89.2 percent versus 93.4 percent in the same quarter one year ago.

For the first six months of 2004, General Insurance pretax operating income increased 29.5 percent to $157.7 million, compared to $121.8 million for the first six months of 2003. Net premiums earned were $772.8 million versus $653.0 million a year ago, and the composite underwriting ratio was 91.0 percent versus 94.0 percent one year ago.

Strong underwriting performance in 2004 has been driven by a continuation of generally positive claim cost trends, as well as a greater increase in premium revenues than production and operating expenses.

Mortgage Guaranty Group Results

Comparative year over year operating results of the Company's Mortgage Guaranty Group declined in both the second quarter and first half of 2004. Pretax operating income in the second quarter dropped by 14.9 percent to $59.5 million from $69.8 million for the same period last year. Net premiums earned in the quarter were $100.4 million, up 1.6 percent from $98.7 million for the same period last year. The composite underwriting ratio in this year's second quarter rose to 57.4 percent compared to 45.7 percent in the same quarter of 2003.

For 2004's first half, pretax mortgage guaranty operating income reflected a reduction of 19.8 percent to $116.9 million from $145.8 million in the first six months of 2003. Net premiums earned were nearly flat at $199.1 million, compared to $198.8 million earned in the first half of 2003. The year to date composite underwriting ratio was 58.1 percent in 2004 compared to 43.1 percent one year earlier.

Second quarter 2004 business persistency improved to 54.8 percent from 50.2 percent at the end of the preceding quarter, and from 46.0 percent at year end 2003. In this year's first half, the claims portion of the composite underwriting ratio declined in the first quarter mostly due to a drop in the paid loss ratio, while it rose in the second quarterly period due to a higher paid loss component. The loan delinquency ratio declined slightly throughout this year's first half, but a moderate decline in actual and expected cure rates was mainly responsible for a rise in claim reserve provisions in this period. Second quarter 2004 underwriting results benefited from a slight reduction in the expense ratio, while first half results were hindered by a higher expense ratio mainly due to a previously reported charge for accelerated vesting of stock option awards.

Title Insurance Group Results

Title operations for this year's second quarter registered higher than anticipated revenues and pretax operating income. Premium and fee revenues were slightly greater than the levels posted in last year's second quarter, claim costs remained in line with premium and fee income trends, and underwriting and other operating expenses remained well contained. In combination, these factors produced a second quarter composite underwriting ratio of 90.7 percent compared to 97.0 percent posted in this year's first quarter, and 88.6 percent in 2003's second quarter.

For the first half of the year, premium and fee revenues grew by 0.4 percent to $502.8 million compared to $500.8 million in 2003. Pretax operating income was $44.4 million, down 28.6 percent from $62.2 million in last year's first half. A composite ratio of 93.6 percent was posted for this year's first six months versus 90.0 percent in the same period of 2003.

Source: Old Republic's General Insurance Group



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