2. Old Republic International Corporation (NYSE:ORI)Owl Creek’s Stake Value: $146,369,000
Percentage of Owl Creek’s 13F Portfolio: 6.71%
Number of Hedge Fund Holders: 26
Old Republic International Corporation is placed at number 2 on our list of the 10 stocks Owl Creek Asset Management is buying. Old Republic is an American property insurance and title company headquartered in Chicago.
In the investor letter by Third Avenue Management, ORI was highlighted. Here is what the letter said:
“During the quarter the Fund initiated a position in Old Republic, which operates in several lines of insurance. Old Republic’s largest exposures are in specialty property and casualty segments including trucking insurance, workers’ comp and variety of others. The company has generally been a decent underwriter, historically speaking, in spite of the fact that trucking insurance has been a particularly challenging business due to a trend of rising claims and surprisingly large claim awards. That trend has caused a number of insurers to cease writing trucking insurance and the remaining players to substantially re-price those risks. We would expect Old Republic’s underwriting results to improve going forward. Old Republic is also one of the largest players in the oligopolistic title insurance market. The first function of title insurance is the mitigation and near-elimination of title risk in residential and commercial real estate transactions. The second function is to insure against any residual risk. For this reason, title claims tend to be rare, required regulatory capital in the business tends to be small, and returns on that capital tend to be quite high. Pure players in the title insurance industry, who are Old Republic’s direct competitors, are typically highly profitable and trade at substantial premiums to book value. Finally, Old Republic’s consolidated results and returns on equity have been dragged down for years by a book of business that is in runoff. While the existence of the runoff portfolio tends to drag on consolidated returns, as it liquidates it will continue to free up equity, which the company will likely continue distributing to shareholders in the form of special dividends. Taking all of these things together, it appears likely that Old Republic’s operating performance can improve meaningfully over time and that, in any event, the consolidated valuation, at or below tangible book value, even after making adjustments for recent capital market turmoil, materially understates the sum of its parts. More qualitatively, the company has historically had a reputation for being less than eager to engage the investment community, but we believe there has been a reconsideration of this posture coinciding with a recent management succession and new hires. To the extent that Old Republic is more proactive in explaining each of these drivers of improving operating performance and the degree to which the company is substantially undervalued, we would expect the result to be a positive impact on the share price.”
