Q4 2024 Old Republic International Corp Earnings Call
Regina: Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Old Republic International Fourth Quarter 2024 Earnings Conference Call.
Regina: All lines have been placed on mute to prevent any background noise.
Speaker Change: After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star then the number one on your telephone keypad. To withdraw your question, press star one again. I would now like to turn the conference over to Joe Calabrese with the Financial Relations Board. Please go ahead.
Joe Calabrese: This morning, we distributed a copy of the press release and posted a separate financial supplement. Both of the documents are available on Old Republic's website at www.oldrepublic.com.
Joe Calabrese: Please be advised that this call may involve forward-looking statements as discussed in the press release and financial supplement dated January 23, 2025. Risks associated with these statements can be found in the company's latest SEC filings.
Craig Smiddy: Presenting on today's conference call will be Craig Smiddy, President and CEO, Frank Sodaro, Chief Financial Officer, and Carolyn Monroe, President and CEO of AllRepublic's National Title Insurance Group.
Speaker Change: Management, we'll make some opening remarks and then we'll open the lawn for your questions.
Speaker Change: At this time, I'd like to turn the call over to Craig. Please go ahead, sir.
Craig Smiddy: Okay. Thank you, Joe. Good afternoon and welcome again to Old Republic's fourth quarter and year-end 2024 earnings call.
Craig Smiddy: So, during the fourth quarter, we produced $285 million of consolidated pre-tax operating income up from $237 million in 2023. Our consolidated combined ratio was 92.7, and that compares to 93.3 in the fourth quarter of last year.
Craig Smiddy: As we noted in the release, we've renamed our general insurance segment to specialty insurance.
Craig Smiddy: We believe specialty more appropriately reflects our specialty PNC strategy with 17 underwriting subsidiaries focused on unique specialty niche markets.
Craig Smiddy: So, in specialty insurance, we grew net premiums earned by 13% in the fourth quarter and produced $228 million of pre-tax operating income. That's up from $195 million last year.
Craig Smiddy: The Specialty Insurance Combined Ratio was 91.8 in the quarter, and that compares to 92 last year.
Craig Smiddy: Despite the continuation of higher mortgage interest rates and a tight real estate market,
Craig Smiddy: Title Insurance Group premiums and fees by 9% in the fourth quarter and produced $55 million of pre-tax operating income, up from $44 million last year.
Craig Smiddy: The title insurance combined ratio was 94.4 in the quarter and that compares to 95.5 last year.
Craig Smiddy: Our conservative reserving practices continue to produce both favorable prior year development and the specialty insurance and title insurance segments.
Frank: And Frank will talk a little bit more about that as we get to his remarks.
Frank: Our balance sheet remained strong even as we returned large amounts of capital to shareholders through both dividends and share repurchases.
Frank: We declared a special dividend of $2 per share in the fourth quarter, which reduced our book value per share by that same $2 amount.
Frank: Investing in new specialty underwriting subsidiaries, technology, and talent. And on that front, you may have seen earlier this month, we announced our latest new underwriting venture, Old Republic Cyber.
Frank: So I'll now turn the discussion over to Frank and then Frank will turn things back to me to cover
Specialty Insurance, followed by Carolyn, who will discuss
Speaker Change: Title Insurance, and then we'll open it up for our usual
Frank: Q&A and conversation. So with that, Frank, I hand it over to you.
Speaker Change: Net investment income increased 10% and 16% in the quarter and year, respectively, driven by higher yields on the bond portfolio.
Speaker Change: Our average reinvestment rate on corporate bonds during the year was 4.8%, while the comparable book yield on corporate bonds disposed of was 3.5%.
Speaker Change: The total bond portfolio book yield now stands at 4.5% compared to 4% at the end of last year.
Speaker Change: During the quarter, the value of our total investment portfolio decreased by about 400 million. However, we ended the full year up over 100 million.
Speaker Change: Turning now to loss reserves. In the quarter, the consolidated loss ratios benefited from favorable development.
Speaker Change: by 2.9 percentage points compared to 4.7 last year. As expected, the lower level in the quarter came primarily from specialty insurance and was consistent with the full year results.
and I'll give some line-of-coverage details.
Speaker Change: Commercial Auto and Workers' Comp continue to have strong, favorable development, although lower than last year.
Speaker Change: Property also experienced strong favorable development and was higher than last year.
Unknown Speaker
Speaker Change: The favorable development in these lines were partially offset by unfavorable development in general liability, which was spread across multiple subsidiaries and accident years, and in transactional risk, which is included within financial indemnity.
Speaker Change: This recent experience aided our decision to exit transactional risk, which contributed less than $20 million of premium in 2024.
Speaker Change: We ended the quarter with book value per share of $22.84.
Speaker Change: which, inclusive of both the ordinary dividends and the $2 special dividend declared in the quarter, equated to an increase of 11% for the year, resulting primarily from our strong operating earnings.
Speaker Change: In the quarter, we declared nearly $560 million of dividends and repurchased $174 million worth of our shares, bringing the total capital return this year to just over $1.7 billion.
Speaker Change: Since the end of the quarter, we repurchased another $25 million worth of shares, leaving us with about $205 million remaining in our current repurchase program.
Craig Smiddy: And I'll turn the call back over to Craig for discussion of specialty insurance.
Okay, thanks Frank.
Craig Smiddy: Specialty insurance net written premiums were up 16% in the fourth quarter with strong renewal retention ratios.
Craig Smiddy: Rate increases on most lines of coverage, new business growth, and an increasing premium production in our new specialty underwriting subsidiaries.
Craig Smiddy: Our E-Nest premiums grew by 21% in the quarter and 33% for the year. So we ended the year with $611 million of surplus lines direct written premium.
[inaudible]
Speaker Change: As I mentioned in my opening remarks, in the fourth quarter, Specialty Insurance pre-tax operating income was $228 million, while full year 2024 pre-tax operating income was $848 million, and the fourth quarter combined ratio was 91.8, while the full year combined ratio was 92.2.
The full year combined ratio was two points.
Speaker Change: which reflects the anticipated lower level of favorable prior year loss reserve development somewhat offset by an improvement in the 2024 current year loss ratio.
Speaker Change: So, given these top line and bottom line results, we continue to grow at a strong clip and at a very profitable level within specialty insurance.
Speaker Change: was 64.1, including 2.4 percentage points of favorable prior year loss reserve development. And that compares to 65.1 last year that included 5.1 points of favorable development offset by an increase.
Speaker Change: to the 2023 current year loss ratio in the fourth quarter of 23.
Craig Smiddy: and many more. Thank you for joining us. I'm your host, Craig Smiddy.
Craig Smiddy: The expense ratio was 27.7 in the fourth quarter, and that compares to 26.9 last year, while the full year expense ratio was 28.1, and that compares to 28.2 for the full year 2023.
Craig Smiddy: So, these results are right in line with expectations and those ratios are holding steady for us.
Craig Smiddy: Now turning to property catastrophic losses that impacted the industry as a result of the Los Angeles wildfires.
Craig Smiddy: First, of course, our thoughts remain with all of those in the disaster areas, which includes about a hundred of our associates.
Craig Smiddy: You may recall we write less catastrophic exposed business than most of our peers. So currently, we estimate our ultimate LA wildfire losses to be between 10 and $15 million.
Craig Smiddy: Now to provide you with some details on commercial auto and workers' compensation.
Craig Smiddy: Commercial auto net premiums written grew 15% in the fourth quarter, while the loss ratio came in at 77.9, and that compares to 78.3 last year.
Craig Smiddy: The full year loss ratio was 72.4 compared to full year 23 of 71.5.
Craig Smiddy: Rate increases for commercial auto were approximately 10% and consistent with what we've said in the last several quarters and really several years, those rate increases are commensurate with the loss trends that we're observing.
compared to the full year 2023 loss ratio of 41.4.
Loss frequency for work comp continues to decline.
Craig Smiddy: Same story that we've seen for many years now, while the loss severity trend remains very stable. So given the higher wage trend within payroll, which again as a reminder is our rating base,
Craig Smiddy: So that's a benefit for us. And given the declining loss frequency trend, the stable loss severity trend,
Craig Smiddy: Our rate decreases of about 4% allow us to remain at a competitive and adequate level when it comes to our current rates on workers' compensation.
Craig Smiddy: So we expect solid growth and profitability and specialty insurance to continue into 2025.
Craig Smiddy: which reflects the success of our specialty strategy and our operational excellence initiatives. We also expect continued growth and contributions from our new specialty underwriting subsidiaries that we've talked about.
Craig Smiddy: So, I'll now turn the discussion over to Carolyn to report on title insurance. Carolyn? Thank you, Craig. The title insurance group reported premium and fee revenue for the quarter of $702 million.
Carolyn: This represents an increase of 9% from the fourth quarter of 2023.
Carolyn: Premium and fees produced in our direct operations represented 23% of revenue versus 21% in the fourth quarter of 2023.
Carolyn: Directly produced premium fees were up 24% from the fourth quarter of last year, while agency produced premiums were up 5%.
Carolyn: As shown in our recently enhanced financial supplement, new open title orders in our direct operation threw up 26% during the fourth quarter of 2024 compared to the fourth quarter of last year.
Carolyn: Nearly a third of the new residential orders during the quarter were refinance transactions, continuing the trend that we saw last quarter.
Carolyn: Total agency and direct commercial premiums increased moderately for the quarter and represented approximately 23% of net premiums earned in the fourth quarter of 2024 as compared to 21% in 2023.
Carolyn: Our pre-tax operating income of $55 million was an increase of 26% over fourth quarter of last year, bringing our full year pre-tax operating income to $144 million.
Carolyn: We're pleased to report that our combined ratio for the quarter was 94.4% compared to 95.5% during the fourth quarter of 2023. This is an improvement of over one percentage point driven by a combination of increased revenue and expense management.
Carolyn: 2023 and 2024 were challenging years for the real estate market. During the year, we watched the market pretty much bounce along the bottom and prepared for things to turn.
Carolyn: Our 2024 revenues improved slightly over 2023 as buyers became accustomed to higher prices.
Carolyn: Slightly improving rates coupled with strong homeowner equity pushed up refinance activity and newly built homes are starting to ease our inventory levels.
Carolyn: We start 2025 mindful of where the market has been, and encouraged by improvements in the broader economy and the overall direction of order counts of our direct operations.
Carolyn: Our agency operations continue to assist agents with growing their market coverage.
Carolyn: We are refocusing our technology efforts on integrated solutions that enable our agents to seamlessly connect to our customer portal. This will make it easier to do business with us regardless of which closing software is being used by our title agent.
Carolyn: There will be more to come throughout 2025 on these technology solutions.
Carolyn: Thank you. And with that, I'll give it back to Craig. Okay, Carolyn. Thanks.
Speaker Change: So, profitable growth continued in specialty insurance in 2024, and we remain very optimistic for specialty insurance in 2025 and beyond.
Speaker Change: And in title insurance, we've remained profitable and our optimism is increasing as revenue has shown modest growth over the last few quarters.
Speaker Change: Overall, our strong 2024 operating performance drove solid earnings per share, solid operating return on equity, and solid book value growth, which enabled us to return a record amount of capital to our shareholders in 2024.
Speaker Change: So that concludes our prepared remarks and we'll now open up the discussion to Q&A where I'll answer your questions or I'll ask Frank or Carolyn to help me out.
Speaker Change: At this time, I'd like to remind everyone, in order to ask a question, simply press star followed by the number one on your telephone keypad. Again, that is star one for any questions. We'll pause for just a moment to compile the Q&A roster.
Speaker Change: Our first question will come from the line of Gregory Peters with Raymond James. Please go ahead.
Well, good afternoon, everyone. Hi, Craig.
Speaker Change: So, I guess for the first question, and I appreciate the commentary you provided on the general insurance business.
Speaker Change: You know, as I was going through the supplement, you know, I was particularly struck by the growth that you reported in general liability.
Speaker Change: Home and Auto Warranty and in the property business on a year-over-year basis for the full year.
Speaker Change: So maybe, and I know maybe some of this is tied in with some of the new business initiatives, but maybe you could, you know, dissect those three segments or sub-segments and tell us what are the drivers there for the growth.
Sure, Craig.
Speaker Change: Right, so indeed, a good amount of those premiums are coming from our new
Underwriting subsidiaries.
Speaker Change: When it comes to property, for instance, you have Inland Marine, one of our new underwriting subsidiaries, is producing meaningful premiums.
Speaker Change: And as we note in the footnote there, that our property includes our inland marine coverages.
Speaker Change: and our E&S operation is also producing meaningful premiums at this point and that contributes to both property and general liability growth as well.
Speaker Change: And then on home and auto warranty, actually home warranty is down a bit as you might expect.
because of
provided in conjunction with the sale of a new.
Home.
Speaker Change: But on the auto warranty side, we've entered into several new auto warranty agreements and the auto warranty is producing some fairly significant growth there.
Speaker Change: Thanks. Thanks for that call. Just related to the specialty insurance segment,
Speaker Change: You know, the biggest line of business for you by far and away is the commercial auto business. We talked about rate increases there. Maybe you could spend a minute and give us a perspective on what you see going on from a competitive landscape perspective.
Unknown Speaker
Speaker Change: Sure, you know, I would first just reiterate what we've now said for several quarters and several years. And that is that we have been, since things really started to...
Go sideways in 2018 and 2019 with respect to severity.
Speaker Change: and legal system abuse and those things that are contributing to that severity. We have been very diligent at monitoring severity trend on a real-time basis, adjusting rates.
As as we go along
Speaker Change: And we have now, you know, since that time period, five, six, seven years.
been getting double-digit rate increases.
commensurate with the trend that we're seeing. So
We have stayed on top of it as such.
Speaker Change: We've had favorable development compared to the industry, which has had unfavorable development. We've seen actually favorable development. And if you think about the fact that we jumped on it early, that we monitor it as closely as we do.
Speaker Change: and get rate changes commensurate with those severity trends, that compounding of rate.
Speaker Change: has served us well, and we are comfortable that as long as we
Speaker Change: Stay current with the trends we're observing. We'll continue to to be able to
to produce a profitable result there.
Speaker Change: You know, it really varies because, as you know, you still have over the last year, we've seen a lot of competitors put up on favorable development and they've reacted.
Speaker Change: In different ways, a lot of them raising rates substantially, which has created some opportunity for us, given that we've been more steady over the course of the last five or six years.
Speaker Change: And when it comes to severity, it seems like from some of the commentary of those competitors, you know, they're still pointing to severity as the reason for their unfavorable development.
Speaker Change: You know, that's not a new story for us. We recognized that severity back in 18 and 19, and we've stayed on top of it. We made major corrections.
immediately where we were getting rate increases that were.
Upward Toward.
even the high teams.
Speaker Change: We're very comfortable with where we're at and that others are still trying to react and figure things out.
Speaker Change: Makes sense. That's good color. I guess for the last question, ordinarily, Carolyn, I have one for Carolyn, but actually I have another.
Speaker Change: change course and ask Frank a little bit about the investment portfolio.
And, you know, I know, you know, with
Speaker Change: The yields having gone up in the last couple years, I know there was a pivot a little bit away from the equity investment side, but it seems like that's kind of stabilized.
Speaker Change: So I, you know, from a big picture perspective, just, you know, where are we with new money yields versus where the portfolio yield is? Have you done anything with duration? And what's your updated view on the balance between fixed income and equities?
Speaker Change: I could dig into that a little bit. So I'll start with what your last question there, where we're at now, which is about 84 and fixed 16 and equities, we're pretty comfortable with that level. And we're poised to go either way up and down if we have to, depending on the opportunities that are out there, but we're comfortable where we're at.
Speaker Change: As far as new money, we were putting, for the year, we were reinvesting at about.
4.0
Speaker Change: 8% on corporate bonds and the portfolio yield right now is at 4.5, that fixed income portfolio.
Speaker Change: There's some room to go up, but that's definitely slowing down. As far as duration and credit quality and all that, we have not made material changes in that.
Speaker Change: in that arena. So it's a pretty steady state, I would say, poised to move where there's opportunities.
Speaker Change: Yeah, Greg, I would just add to that that although we look at duration and and we have some flexibility
We do try to match
Speaker Change: is consistent with what we believe we need to do relative to our anticipated liabilities.
Makes sense. Thank you.
Speaker Change: Again, for any questions, simply press star followed by the number one on your telephone keypad. Again, that is star one. We'll take our next question from the line of Paul Newsome with Piper Sandler. Please go ahead.
Good afternoon.
wanted to ask some capital management questions.
Speaker Change: and maybe just sort of review and see if there's any changes in how you are.
Speaker Change: Thinking about your current capital position given special dividends and dividends in the buybacks that you've done so far. And maybe you could talk a little bit about the trade-off of capital usages.
particularly looking at dividend versus
Speaker Change: stock repurchase and what you're thinking in that at the moment.
Sure, Paul, I'm happy to talk about that.
Speaker Change: things that we've had to deal with, if you want to call it a problem, it's really not, is that as much as we've been returning to
Speaker Change: shareholders over the course of the last three or four years we continue to refill the coffers if you will with very strong earnings and retained earnings.
So while we've tried to
Speaker Change: eliminate excess capital, we keep creating excess capital. So we made a decision in the fourth quarter with the board that we would issue the $2
Speaker Change: Special Dividend as a way to return capital more quickly and in a single shot, so to speak, and get us to a level that
Speaker Change: is more consistent with an appropriate capital level. And at the same time, we retained our ability to continue to repurchase shares.
Speaker Change: And as Frank noted, we have about 200 million still on that current share repurchase authorization. And as we said at the beginning,
Speaker Change: of our share repurchase programs over the last few years. We are sensitive to price.
Speaker Change: look at where we're trading and relative to our peers and and we're
We see things.
Speaker Change: and so we do either accelerate or temper our share repurchases depending on where we might be trading and we remain opportunistic.
In that regard, so that'll continue and
Speaker Change: Those factors will all come into play next time we sit with our board and again review our capital position and the best, most efficient way to return capital to shareholders.
Speaker Change: Is there a particular model that dominates how you consider what is excess capital or not excess capital at the moment?
Speaker Change: and measures when we look at capital. And, and we of course, look at liquidity as well. And, and if we believe we have substantial liquidity.
then look at how much we think.
Speaker Change: We might have in the way of excess capital, looking at various different leverage metrics, and of course, you know, looking at
are RBC ratios, looking at and having conversations with...
are rating agencies.
Speaker Change: So there's a lot of quantitative and qualitative analysis that comes into play when we look at our capital position. But right now, even with the special dividend and the share repurchases,
Speaker Change: All of our conversations, all of our metrics would continue to suggest that we certainly have sufficient capital and even some cushion beyond that.
Thank you. Appreciate the help, as always.
Thank you, Paul.
Speaker Change: Do we have no further questions at this time? I'll hand the call back to management for any concluding remarks.
Speaker Change: Okay, well, we here at Old Republic feel very good about the fourth quarter. We feel very good.
Speaker Change: are shareholders, and we remain even more optimistic when we look out at 2025.
Speaker Change: given the various initiatives that we have underway, given where we sit today. And again, we wish you all well in 2025. And, and look forward to seeing you next quarter and and we'll continue to report on our progress.
Speaker Change: So, thank you all very much and have a great day.
The
Speaker Change: Everyone, that will conclude today's call. Thank you all for joining and you may now disconnect.