Q2 2021 Old Republic International Corp Earnings Call
Good day, Thank you for standing by and the welcome to the Old Republic International second quarter of trying to try New 1 earnings conference call. At this time all the participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask the questions.
During that session of really enterprise star 1 on your telephone keypad. If you require any further assistance. Please press star zero.
Oh.
I would now like the hand back on the French over to your speaker of today, Mr. Joe Calabrese the floor is yours.
Thank you for that.
Afternoon, everyone and thank you for joining us for the Old Republic conference call to discuss second quarter 2021 results.
This morning, we distributed a copy of the press release and posted its of course, the physical supplement, which we assume you have seen and or otherwise have access to draw on the call.
Both of the documents are available on old Republic's website, which is www dot old Republic Dot com.
Please be advised this call may involve forward looking statements as discussed in the press release and statistical supplements date of July twenty-second 'twenty 'twenty 1.
The associated with the statements can be found in the company's latest thoughts of T filings.
This afternoon's conference call will be led by Craig Smiddy, President and CEO of Old Republic of International Corporation and several other senior executive members as planned for this meeting.
At this time I'd like to turn on the call over the Korchman. Please go ahead Sir.
Okay. Thank you Joe well.
Well good afternoon, everyone and welcome again to the old Republic second quarter earnings call.
With me today, we have our CFO Frank Sodaro <unk>.
<unk> joining us for the first time on this call following Karl Miller's retirement, but.
Frank has been working alongside Karl for several years as Deputy CFO, So Frank welcome.
And we also have Carolyn Monroe, the president of our title insurance group.
So I'll kick things off here.
Or I produced another terrific quarter with general insurance and title insurance each posting exceptional results that drove the strong consolidated results that we posted.
Compared to the second quarter of 2020 total net premium and fees increased to just under $2 billion.
Up almost 30%.
Pre tax operating income increased to $275 million and that's up 80%.
The consolidated combined ratio improved to 96% a 5.5 percentage point improvement.
Again, comparing to the second quarter of 'twenty General insurance saw growth return with net written premium increasing by 13% and entitled of insurance, We grew net premiums and fees earned by 57%.
So our specialty strategy with our diverse portfolio of specialty products in in both the the general insurance and title insurance groups continue to deliver strong growth and strong profitability.
So with that introduction I'll now turn the discussion over to Frank to discuss some of the per share figures along with our investment portfolio and then he'll turn things back to me to cover general insurance and that'll be followed by Caroline who will discuss title insurance and.
Then of course, we'll open it up to Q&A after that so.
Frank I hand, it over to you.
Thank you Craig and good afternoon, everyone. This morning, we announced first quarter net income, excluding all investment gains and losses of $221 million or <unk> 73 per share of <unk>, 78% increase compared to last year's second quarter.
For the first 6 months of this year net operating income was $427 million, which was up 61% Brazil.
The results for both periods were driven by substantial growth and underwriting profitability within our general and title insurance segments, and you'll hear more about that shortly.
Additionally, shareholders equity rose to just under $6.8 billion, resulting in book value per share of growing to a record $22.59.
So taking into account dividends. This was an 11% increase from last year and.
This growth was driven by a combination of our strong earnings along with further market appreciation within the investment portfolio.
At June 30 debt investment portfolio portfolio consisted of approximately 68% of highly rated bonds and short term investments with the remaining 32% allocated to large cap stocks that have a long history of not only paying dividends, but increasing them.
The fair value of the equity portfolio improved by another $120 million during the quarter and ended with an unrealized gain of nearly $1.3 billion.
Net investment income decreased slightly for the quarter and almost 5% year to date as the impact of lower yields on new investment purchases more than offset a modest increase in the average investment base.
The average maturity on the bond portfolio remained consistent at approximately 4 years.
And the book yield was 2.6% compared to a market yield of 2.5%.
Now turning to the liability side of the balance sheet claim reserves grew to just over $11 billion at June 30th all 3 operating segments recognize favorable claim reserve development for the quarter in total the consolidated claim ratio benefited by 1.8 percentage points for both this year's second quarter and for.
First half compared to <unk>, 3 and <unk> 6 percentage points for the same periods a year ago.
Finally, our mortgage run off operations continued to generate results aligned with our expectations.
The group paid another $25 million dividend apparent, bringing the total of $50 million for the year.
We expect that pace of dividends to continue through the remainder of the year total GAAP shareholders' equity for the mortgage companies ended the quarter at just under $220 million.
Ill now turn the call back to Craig's of this for a discussion of general insurance.
Okay, Frank Thank you.
So turning to the general insurance as I already noted we saw growth return with the net written premium increasing by 13% and net premiums earned increasing 6%.
Compared to the second quarter of 2020 pre tax operating income rose by almost 45% primarily from our improved claim ratios. The overall combined ratio improved for 4 percentage points from 98, 4% to 94%.
On the claim ratios we reported we are of course inclusive of.
Favorable.
The prior year development and that came in at 2.9 percentage points for the quarter.
Net premiums written in commercial auto grew by 13% with the tailwind we have from continued rate increases in auto liability.
And those rate increases.
Creases right now are coming in in the 15% range.
Our second quarter commercial auto claim ratio improved to 75, 4% compared to 83, 4% on the second quarter of 'twenty as.
As far as frequency claim frequency is returning but still lower than pre pandemic levels.
However, offsetting that.
Is higher severity that continues due.
Due to greater speeds and the continued pressure on settlement values.
Turning to workers' compensation net premiums written were even.
With the second quarter of 'twenty. However, that's a notable improvement from <unk>.
Recent quarters, where we've experienced some declines.
The rates in work comp were slightly negative.
And thats fluctuated between quarters.
Between the range of plus or -2% over the most recent quarters, so relatively flat trend there.
The workers' compensation second quarter claim ratio came in at 59, 6% and that compares to 65, 7% in the second quarter of 2020.
Claim frequency here in workers' comp.
Is that trending back toward <unk>.
Pre pandemic levels.
Given that we typically provide commercial auto workers' comp and general liability together in our product offering.
This combined.
The claim ratio came in at <unk>.
69, 1% compared to 74.6%.
In last year's second quarter.
Highlighting.
The results in financial Indemnity property, and other coverages, which we show on the financial supplement.
We've expanded our product offering in these areas.
And collectively.
And those 3 areas. We grew net written premium by 25% this quarter and the favorable claim ratios helped contribute to the improved combined ratio and the general insurance group.
So we are in general insurance continued to enhance our underwriting excellence through better segmentation.
Prove risk selection pricing precision and increased use of analytics.
And we feel confident that these efforts will continue to facilitate strong underwriting profitability as we move through the year.
The marketplace is.
Generally disciplined and it's.
Therefore favorable for us to continue to obtain appropriate prices for our products, while maintaining our high retention ratios.
So that that'll.
Wrap it up for the General insurance group for the time being and I'll now turn the discussion over to Carolyn who along with the rest of our team have put together a string of terrific quarter, So Caroline and I will let you take it from here. Thanks.
Thank you Craig as reported this morning, the title group posted all time second quarter and year to date highs for both the underwriting revenue and operating profit total premium and fee revenue for the quarter of $1.1 billion was up nearly 57% from the prior year.
This is a combination of strong contributions from both the agency business up 61% and our direct production channels up 44% for the 6 month year to date period premium and fee revenue has already surpassed the $2 billion Mark a 48, 6% increase from the comparable.
Both period last year on.
The pretax operating income of <unk>.
$138 million for the quarter compared to 65 million in last year's second quarter, an increase of approximately 73 million or of 112, 3% the.
The second quarter.
So marks 4 consecutive quarters in which the hundred million pretax operating income threshold has been exceeded.
The high premium in tea volume provide greater leverage of our expense structure as noted in our 85.4% expense ratio for the second quarter. This year and 86, 3% for year to date June results versus 89, 6% and 96% for the cash.
Comparable prior periods.
Per the mortgage banker association full year 2021 mortgage originations are expected to be 1 of the top tiers on record, although trailing by 10, 5% the record setting 2020 results.
Since second quarter 2020, refinances have made up the lion's share of the mortgage origination growth and this trend continued through the second quarter of 2021.
As of March decrease expected in refinances for the second half of the year as compared to the strong volumes experienced during the second half of 2020. However on the flip side did the purchase market is expected to increase by over 15% in 2021, which helps the title insurance industry, where the higher fee per file.
Phil.
The technology continues to be of cornerstone for advancement in our industry as well as a key piece of the old Republic, <unk> ability to deliver on our business goals and objectives.
During the third quarter 2020 earnings call. We introduced the proof of concept project, we had initiated around robotic process automation or RPE, while creating our first spot. This proof of concept proved measurable ability to reallocate human hours of work more importantly, Andrew.
More exciting the early metrics of showing a 35 per cent reduction and the time to complete the processes, while providing elasticity to handle changes in volume.
This elasticity allows for increases in volume without an increase in corresponding expense.
The concept created the results we were hoping for and we will continue to deploy and leverage this technology.
We know that we are only starting to tap the potential of the RPE and other automation technologies and Theyre excited to implement their capabilities. This represents just 1 initiative on our portfolio of technology projects that we're working on the.
The last year showed the increased usage of all digital solutions and platforms. We saw a similar trend with the usage of our digital closing platform per box. So in fact, we remain the clear market leader in this space as the majority of the digital closings and E notes completed nationwide occur on per bus though.
As a result, we constantly re in the.
First in the improvements that will continue to expand the adoption of digital closings in the industry.
1 other quick example of our technology focused debt I would like to share with you is that 1 of the major challenge as identified in the industry was the work required to tag documents to allow the electronic signatures by all parties and the transaction here.
Historically on the title side it required manual and time consuming preparation to apply the tags to address this we released the recent enhancement of white TEG ticked tagging, which allows for the reduction of or even eliminates manual tagging efforts.
This is specifically targeted for the title industry. It will be used by any party that doesn't currently have a document tagging standard.
We are committed to easing the challenges to adoption and we'll have a continued focus on that the.
Essentially our business roadmap and our technology road map have converged into 1 as the months to achieve our results I look forward to continuing to share of the results of these with you in the future. Our plan is to blend the history of old Republic solid business practices procedures and expertise with.
G to fully unlock their measurable benefits across our business units.
As we entered the second half of the year. Our order counts remained strong mortgage rates are projected to remain low and continued improvements in the unemployment rate are all drivers that should equate to a healthy real estate market to finish up the year.
I'd like to close with my appreciation to all our employees and customers as they continue to meet the high demands of the current real estate market as always our guiding principles of integrity managing for the long run financial strength protection of our policyholders and the wellbeing of our employees and customers will be at the port.
Front of all of that we do.
And with that I'll turn the call back over to Craig.
Okay Caroline Thank you very much.
Well again, we're very pleased with another quarter of exceptional operating results.
And we're also very pleased with our specialty strategy, providing specialty insurance and products to core industries served by general insurance and title insurance.
Which in turn produces value for our shareholders.
So that concludes our prepared remarks.
We will now open up the discussion of Q&A.
I will either answer your question or I'll ask Frank or Carolyn to respond.
And the reminder to ask the question you will need the past tier 1 on your telephone keypad.
Again that is star 1 on your telephone keypad there'll be there on your question in the past the palanquin.
Your first question comes from the line of Greg Peters from Raymond James Your line is now open.
Good afternoon team old Republic and.
Congratulations Frank on the promotion you did a good job with your first conference call. So thank.
Thank you.
Hopefully many more to come on.
Let's just in an order general insurance.
Thank you for the color I was wondering if you could give us.
You know the suites, we look at the growth can you give us a sense of.
Where the growth is coming as an exposure is it new business is it rate sort of give us how is the balance of that working across the entire book and then maybe as you're answering that question Craig.
Include the discussion around retention.
Okay.
I'd be happy to.
To do that Greg so.
The answer to your question is that it is indeed coming from all 3.
<unk> is up particularly in workers comp as people have returned to work and we've seen our our payroll numbers grow on on our existing business.
Other example of exposures of courses is the miles driven and <unk>.
A number of vehicles in fleets that are returning and increasing so exposure growth is certainly 1 component.
The new business absolutely.
The.
Folks here have.
<unk> been working very hard through exceptional constraint throughout the pandemic to continue to.
Have relationships with the various distribution sources.
That we have relationships with and expand those and make sure that the flow of business opportunities has continued so new business writings is a portion of it and included in that would be.
Some.
The areas geographically, where we have expanded some of our businesses and also as I touched on earlier on.
Our product offering has also expanded and.
So that contribute to new business, new business growth as well and then.
Right.
Obviously, my comments about comp being relatively flat.
That doesn't help growth on the.
The comp line.
However, where we do get help.
As I mentioned the tailwind on on our commercial auto liability in particular, we're still getting.
Rates of 15%.
On our.
D&O business on our aviation business I know I've talked about those 2 areas in prior quarters because.
We were getting significant rate in those areas the.
The rate increases there are less robust than they were but.
Still of are still around the the 10% range for.
For those line so.
That's helpful.
It's a combination of the of the 3 Greg and as far as retention is concerned our retention ratios across virtually all of our lines of coverage of all of our various specialty segment is extremely strong.
<unk>.
We believe through our specialty offering that the specialty risk control of the specialty claims services. The specialty underwriting approach that we have really create a stickiness.
And.
Some greater pricing elasticity.
Because of that and as such we enjoy very high retention ratios and as my comments earlier.
Earlier indicated the marketplace, certainly can influence that as well, but in a disciplined.
Relatively disciplined market place.
That's helpful to retention as well so.
Hopefully that answers your question Greg.
It was great additional color appreciate it.
Just 1 more question on the general insurance before of pivot to title.
You did report favorable reserve development in the second quarter and through the 6 months.
Can you talk to US about you know where the sources what years what accident years, what are the developments coming from.
Give us some additional perspective.
Well I'll I'll kick it off and then see of Frank has any follow up but.
It's fair to say that.
The.
Theres been favorable development on on Workers' compensation.
And.
The other.
The contributing factor is that we really have not seen any contributing unfavorable development of a significant nature from any other lines.
So.
What do you put it all together.
Right.
The.
Pretty decent favorable development.
Number on a.
Aggregated basis, so I don't know Frank if there's anything you would add to that.
I mean, that's it for the quarter in a nutshell, it's 25 million of favorable in total of the year as you would expect.
Coming from older years, predominantly 2012 for 2017 of the main years that it's coming from.
But workers comp is the lion's share.
Got it as they know.
As you know, Greg we're very conservative.
Our loss ratio on very conservative about.
The releasing favorable development, if we see unfavorable development, we put it up immediately if we see favorable development, we're going to hold loss ratios tell were.
Absolutely certain and on long tail lines, we're holding those those loss ratios from 3 to 5 years generally speaking.
That continues to be our practice and.
I'll, just add that as well to the to the mix of.
Your question yes.
Yeah. Thanks for reminding me about that I appreciate it.
I'll pivot to to the title business and Carolyn.
The phenomenal results.
Congratulations.
Obviously you know.
The tailwind of the the housing boom, that's really helping you here and you know if I.
I was listening with interest about your comments around agency being up over 60% direct being up over 40%.
All really positive.
Yes, but you really didnt comment on.
What what's going on commercial versus noncommercial and I was wondering maybe you could add some color just give us a sense of how your your commercial book is growing during this period of time relative to the residential side.
So our commercial premiums were up.
19, 4% for the second quarter over second quarter of 2020.
And you know.
They represented about <unk> <unk>.
<unk> 14 per cent of our total premiums, but that's really more of a result of how strong the residential market was but.
We're starting to see.
A little more of an uptick in commercial we started seeing it towards the end of the second quarter.
And.
And we feel like going into the third quarter that will we'll see stronger commercial results.
We've seen more I would say mid size and by mid sized we mean of 100 million up to $250 million in deals.
We're starting to see a lot more construction projects than we did during the pandemic, which as you know it makes sense, but we're excited about seeing that in.
We're still seeing a lot of energy projects come our way.
And when I think about the midsize you said the 100 to 200 million is that sort of your sweet spot are you doing deals larger than that or.
Right.
We're doing deals larger than that but the pandemic had slowed a lot of those deals down.
And we're starting to see a lot of investor more investor activity getting excited not for you see a lot of the.
The more of the $100 million and up deals, but no we we.
We have a couple of pretty large portfolio deals we're working on right now but.
We're just seeing a lot more activity in debt we're excited about.
Got it well I have other questions, but I realized there's other people on the call. So thank.
Thank you for the answers and I'll circle back if I have to.
Again, if you would like to ask a question you will need to press star 1 on your telephone keypad.
That is Tyler 1 on your telephone keypad.
Again, we have a follow up question coming from the line of for Greg Peters from Raymond James Your line is now open.
Great.
So I tried.
Trying to be mindful of others, but I'm just going to fire away.
Carolyn when you spoke about the commercial being about 14% that was of the second quarter is it still 14 per cent for the first half of 'twenty..1 2 is that is the or is that just trying to get my percentages right.
Yes, it represented 14% of our overall business year to date year to date year to date perfect. Thanks, and then the other thing I noticed Carolyn in the in the.
In the disclosure on in the supplement was that.
The reserves to paid.
Loss ratio has crept up again it looks like at this point in time, it's as high as it's ever been.
Can you give us some some views on what's going on there.
A lot of that I would say is because of the slowdown in.
In paid activity.
Because of the pandemic.
<unk> courts for clothes that type of you know.
<unk> were were slow to be processed by.
Attorneys.
On the.
Lawsuits couldn't be filed those types of things.
Got it okay.
The last question and I'll have for you is I did notice that you know the.
The in your press release on page 8 where you give us segment composition of shareholders' equity per share that the RFID <unk> runoff segment.
<unk> had a dollar of 50 of of equity in it at year end and through June.
Come down to $1.40, I think you've talked about.
Pulling some of our upstream of some of the capital from that subsidiary can you give us just sort of the status update of that and that's my last question.
Sure Greg Yeah, we took 25 million out in the first quarter ended the same in the second quarter, so $50 million for the year and we just anticipate that thats, probably the pace for this no guarantees, but that's the pace we're expecting throughout the rest of this year.
So shareholders equity there on a GAAP basis ended at $420 million.
Perfect. Thank you very much for the answers congratulations on the quarter guys.
<unk> sorry.
Thank you very much Greg.
Yes.
You have no more questions at this time I will turn the call back over each of the presenters for closing remarks.
Okay, well. Thank you everyone who participated we appreciate your interest in <unk>.
Obviously, the middle of the summer and.
When you have a quarter like this there's tends to be less questions. The better it is so.
Again, thank you everyone enjoy the rest of of your summer and we look forward to talking to you all next quarter. Thank you.
This concludes today's conference call. Thank you all for participating you may now disconnect.
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