Old Republic International Corporation (NYSE:ORI) Q4 2023 Earnings Call Transcript
Old Republic International Corporation (NYSE:ORI) Q4 2023 Earnings Call Transcript January 25, 2024
Old Republic International Corporation misses on earnings expectations. Reported EPS is $0.69 EPS, expectations were $0.72. ORI isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Ladies and gentlemen, thank you for standing by. Welcome to Old Republic International's Fourth Quarter 2023 Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded Thursday, January 25, 2024. I would now like to turn the conference over to Joe Calabrese with the Financial Relations Board.
Joe Calabrese: Thank you. Good afternoon, everyone. Thank you for joining us for the Old Republic conference call to discuss fourth quarter 2023 results. This morning, we distributed a copy to the press release and posted a separate financial supplement, which we assume you have seen and/or otherwise have access to during the call. Both of the documents are available at Old Republic's website, which is www.oldrepublic.com. Please be advised that this call may involve forward-looking statements as discussed in the press release and financial supplement dated January 25, 2024. Risk associated with these statements can be found in the company's latest SEC filings. This afternoon's conference call will be led by Craig Smiddy, President and CEO of Old Republic International Corporation and several other senior executive members as planned for this meeting. At this time, I'd like to turn the call over to Craig Smiddy. Please go ahead, sir.
Craig Smiddy: Okay, Joe. Thank you. Good afternoon, everyone, and welcome again to Old Republic's fourth quarter and year-end 2023 earnings call. With me today is Frank Sodaro, our CFO of ORI and Carolyn Monroe, our President and CEO of our Title Insurance Business. So our focus on specialization and diversification across Title and P&C Insurance enabled us to produce a consolidated combined ratio of 93.3% and $237 million of consolidated pre-tax operating income in the quarter. For the full year, the consolidated combined ratio was 92.6% compared to 91% in 2022 and consolidated pre-tax operating income was $938 million compared to $1.59 billion in 2022. In General Insurance, we continued to produce strong underwriting results with a 92% combined ratio and a $195 million of pre-tax operating income in the quarter.
For the full year, the General Insurance combined ratio was 90.2% just slightly higher than our 89.5% in 2022. And pre-tax operating income was $788 million up 14% from the $690 million we produced in 2022. And despite the headwinds from mortgage insurance rates and the soft real estate market, Title Insurance produced profitable underwriting results with a 95.5% combined ratio and $44 million of pre-tax operating income in the quarter. For the full year, Title’s combined ratio was 97.1% compared to 93.2% in 2022. And pre-tax operating income for Title was $134 million down from the $309 million in 2022. So our conservative reserving practices continue to produce favorable prior year loss development in all three segments, which by the way marked our 9th consecutive year of favorable prior year development.
Our balance sheet, it remained solid even as we continue to return capital to shareholders through both dividends and share repurchases, while we continue to invest in new underwriting subsidiaries, people and technology all with a focus on the long-term. So with those introductory comments, I will now turn the discussion over to Frank. And then Frank will turn things back to me to cover General Insurance, followed by Carolyn who will discuss Title Insurance, and then we'll open up the conversation as well as we always do to Q&A. So with that, Frank, I hand it to you.
Frank Sodaro: Thank you, Craig, and good afternoon, everyone. This morning, we reported net operating income of $190 million for the quarter and $750 million for the year. On a first year basis, comparable year-over-year results were $0.69 versus $0.80 for the quarters and $2.63 versus $2.79 for the full years. Net investment income increased 19% and 26% for the quarter and year respectively, driven primarily by higher yields. Our average reinvestment rate on corporate bonds during the year was 5.35%, while the comparable book yield on bonds disposed of was just over 2.8%. The bond portfolio book yield is now nearly 4% compared to 3.3% at year-end last year. Our investment portfolio mix remains consistent with last quarter and the quality of our bond portfolio remains very high with 99% in investment-grade securities with an average maturity of 4.3 years.
During the quarter, the valuation of our fixed income securities increased by approximately $445 million driven by interest rates. The value of the stock portfolio increased by about $110 million and ended the year in an unrealized gain position of just over $1.1 billion. From a loss reserve perspective, all three operating segments recognized favorable development for all periods presented. In total, the consolidated loss ratio benefited by 4.7 and 4.6 percentage points for the quarter and year respectively compared to 7.4 and 3.7 percentage points for the same period a year ago. Turning to our one-off Mortgage Insurance operations, we expect the previously announced sale to close in the first half of 2024. In the meantime, results were consistent with recent periods and this group paid a $25 million dividend in the quarter, bringing the total return to $210 million for the year.
We ended the year with book value per share increasing to $23.31 which contributed to total book value return of 15.3% for the full year. This return was driven by our strong operating earnings and higher investment valuations. In the quarter, we paid $67 million of dividend and repurchased $55 million worth of our shares for a total of just over $120 million return to shareholders. For the full year, we paid over $275 million in dividends and repurchased $530 million worth of our shares for a total of just over $805 million return to shareholders. I'll now turn the call back to Craig for a discussion of General Insurance.
Craig Smiddy: Okay. Thanks, Frank. So General Insurance net written premiums were up over 12% in the quarter and up nearly 10% for the year. What contributed to this was strong renewal retention ratios and new business growth including new business produced through our new underwriting subsidiaries. And we continue to achieve rate increases across most of our portfolio which helps with the exception of D&O and workers' compensation. As discussed a minute ago, the General Insurance group combined ratio was 92% for the quarter and 90.2% for the year and pre-tax operating income was $195 million for the quarter and $788 million for the year. So we continue to produce very profitable results in our General Insurance business as is reflected in these numbers.
The loss ratio for the quarter was 65.1% which included 5.1 points of favorable development and it was 62% for the year which included 5.7 points of favorable development. The expense ratio for the quarter was 26.9% and it was 28.2% for the year, all of this is very much in-line with our coverage mix. So, turning specifically to our two largest lines of coverage. Commercial auto net premiums written grew almost 20% in the quarter, while the loss ratio came in at 78.3% for the quarter and 71.5% for the year. As we mentioned in the release, that loss ratio of 78.3% in the quarter includes an increase for all four quarters of 2023. This is because severity pushed our loss trend into the low-double-digits and as we have reported in the past, we reacted very quickly when we see them come through in the way of higher severity and loss trend.
However, for both the quarter and the year, we continued to experience favorable prior year loss development on this line, and we feel very comfortable with where we're at in those prior years sitting at the higher end of our reserve actuaries ranges. Rate increases were in the 10% range, so we continue to push for rate to cover loss trend and we're also pulling other portfolio management levers such as increasing deductibles and leveraging data analytics for risk selection. Moving to workers' compensation, net premiums written there declined for the quarter while the loss ratio came in at 42.6% for the quarter and 41.1% for the year. Here too for both the quarter and for the year, we continued to experience favorable prior year loss development.
Frequency for workers' comp continues to trend down as we've seen over many years. While severity trend remains relatively stable, so we think our rate levels remain adequate even with some rate decreases in the low-single-digit range. So, in General Insurance, we expect solid growth and profitability to continue in 2024 reflecting the success of our specialty strategy, our excellence initiatives and our new underwriting subsidiaries. So I'll leave it at that for now with General Insurance and we'll turn the discussion over to Carolyn to report on Title Insurance. Carolyn?
Carolyn Monroe: Thank you, Craig. In the Title group, we reported premium and fee revenue for the quarter of $645 million a 23% [decrease] (ph) from the fourth of 2022. Our agency premiums were down 25% and direct premiums and fees were down 11% from the fourth quarter of prior year. Our pre-tax operating income of $44 million did compare to $45 million in the Q4 of 2022 and our combined ratio of 95.5% compared to 96.2% in the fourth of prior year. As we have discussed on previous earning calls, 2023 was a challenging real estate market. Our full year premiums and fees reflect those market conditions and were down around 33% compared to 2022. Agency premiums made up 79% of our total premium and fees in 2023. While our full year pre-tax operating income of $134 million was lower than 2022.
We are really pleased with the progress we did make during the year. We were able to reduce our operating expenses 19% compared to 2022, and we ended 2023 with full year combined ratio of 97.1%. In addition to managing our cost, our leadership team has continued with a focus on strategic planning. From an IT perspective, modernizing the company has been a real priority. We have had a multi-year approach with several initiatives to optimize our processes, procedures and operating structure. This includes improvements in automation and technology. These initiatives improve the efficiency of our teams, which will allow us to take advantage of improving market conditions when they occur with less of a need to scale up. During 2024, we will continue looking to identify all economy of scale advantages.
Commercial transactions were really not exempt from the market contraction. We saw a small decrease of around 1% in commercial premiums during the fourth quarter compared to the third quarter. Our 2023 commercial premiums decreased in-line with overall premiums compared to 2022. Commercial premiums were 22% of our total premiums for both years. We believe our transformed nationwide footprint positions us well for when the commercial market rebounds. Although housing affordability, low inventory and relatively elevated interest rates persist as we begin 2024, we are optimistic that market conditions will improve with just a little bit of uncertainty when this will take place. And with that, I'll turn it back to Craig.
Craig Smiddy: Thank you, Carolyn. So, we remain pleased with our continued profitable growth in General Insurance, which is helping to mitigate the lower revenues and profit levels in Title Insurance. And we also remain pleased with our capital management efforts including the $806 million return to shareholders through dividends and share repurchases in 2023. For 2024, as I say, we remain optimistic for continued profitable growth within General Insurance, while we remain as Carolyn indicated of the view that Title Insurance will continue to face mortgage interest rate and real estate market place headwinds. So, that concludes our prepared remarks. And we'll now open up the discussion to Q&A and either I'll answer your question or I'll ask Frank or Carolyn to respond.
See also 12 Best German Dividend Stocks and 40 Accredited Online Business Degree Programs Heading Into 2024.
To continue reading the Q&A session, please click here.
