Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Old Republic International Corp (ORI, Financial) reported a significant increase in consolidated pre-tax operating income, rising to $254 million from $227 million in the previous year.
- The General Insurance segment saw a 10% increase in pre-tax operating income, reaching $202.5 million.
- Title Insurance produced $46 million of pre-tax operating income, marking a 32% increase despite headwinds from mortgage interest rates.
- Net operating income for the second quarter was $202 million, up from $180 million last year, with a 20% increase in net investment income.
- ORI continues to return capital to shareholders, paying $70 million in dividends and repurchasing $410 million worth of shares in the quarter.
Negative Points
- The combined ratio for General Insurance increased slightly to 92.4%, indicating higher expenses or losses.
- Title Insurance continues to face challenges from high mortgage rates and a slow real estate market.
- General liability experienced unfavorable development, particularly from accident years prior to 2014.
- The loss ratio for commercial auto increased to 72.3% from 67.5% last year due to lower levels of favorable prior year loss development.
- Despite strong earnings, ORI has not been able to bring down its balance sheet to a more appropriate level, indicating potential overcapitalization.
Q & A Highlights
Q: Let's go to the General Insurance segment first. Can you revisit your methodology and approach to loss picks for the most recent accident years?
A: We are very diligent in measuring frequency and severity trends and adjusting our rates accordingly. We set conservative loss picks and hold them for several years. For example, workers' comp picks are held for four years plus the current year. We are quick to increase recent year picks if needed but conservative in reducing them.
Q: Can you provide more details on the new ventures and how they are reflected in your operating statistics?
A: The new ventures, particularly in E&S premium, are reflected in lines like property and general liability. For instance, property premiums increased from $124 million last quarter to $165 million this quarter. These new underwriting subsidiaries are contributing to our growth.
Q: Given the significant capital return to shareholders, what should we expect going forward?
A: We have returned significant capital but continue to produce strong earnings, which replenishes our capital. We have about $480 million remaining in our current repurchase program and aim to complete it by year-end. We anticipate more capital returns in the future.
Q: Are you able to give us the dollar amount of development in your main business lines for the quarter?
A: Workers' comp had about $39 million of favorable development, commercial auto had over $3 million of favorable development, and general liability had about $9.5 million of unfavorable development.
Q: Why does Old Republic seem to be performing better than peers in lines like GL and commercial auto?
A: Our conservative pricing, diligent monitoring of frequency and severity trends, and robust case reserving practices contribute to our better performance. Additionally, our value proposition and selective distribution partnerships play a significant role.
Q: Can you explain the improvement in the expense ratio in General Insurance over the six-month period?
A: The current expense ratio of around 28% is consistent with last year. This is due to line of business mix changes and investments in new underwriting subsidiaries. As these subsidiaries scale up, the expense ratio could improve further.
Q: What are your expectations for the expense ratio in the Title business?
A: We expect the expense ratio to be similar to 2023. The ratio is tied to revenue, and any improvement in the real estate market could lead to a better expense ratio. We aim for combined ratios between 90% and 92.5% over time.
Q: Can you comment on the sustainability of the recent increase in fee income?
A: The increase in fee income is not one-time. It is a result of our strategic efforts to grow our TPA operation within PMA. We are focused on expanding into new states and offering unique value propositions in claims and risk management.
Q: How do you view ongoing technology spending in the Title business?
A: We will continue to invest in technology to improve efficiencies and support our independent agents. These investments are critical for maintaining our competitive edge and addressing industry challenges like real estate fraud and security.
Q: Is there any remaining capital from the sale of the mortgage insurance business?
A: Most of the capital from the sale has been returned to shareholders. The sale has been closed, and the capital return has been contemplated in our current buyback program.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
