Chicago, IL – Old Republic International Corporation (NYSE; ORI) recently reported much higher operating results for the final quarter and all of 2015. Pretax operating income comparisons with 2014 were enhanced by greater General Insurance underwriting and investment income, and by the record-setting fourth quarter and full year performance of Old Republic’s Title Insurance business. 2015 consolidated net income, however, was affected by lower realized gains from sales of investment securities in comparison with the substantial gains registered in 2014.
2015 general insurance operating earnings benefitted from more positive underwriting performance. Earned premium revenues rose for most insurance coverages with production spurred by both new business and a continuation of strong renewal rates for existing business. Net investment income advanced by 11.5 and 12.0 percent for the final quarter and year, respectively. For the past three years or so this revenue source has trended higher due to a rising invested asset base and enhanced yields largely obtained from a greater, high quality common stock portfolio.
Earned premiums growth was accompanied by relatively lower expense provisions for current and prior years’ claim occurrences. Prior years’ loss reserve developments resulted in an increase of 3.0 and 1.5 percentage points in the claim ratio for 2015’s final quarter and full year, respectively. By contrast, 2014 loss development added 10.1 and 3.9 percentage points to the same respective periods’ claim ratio. 2015 production and general operating expenses held fairly steady in context of revenue trends. For all of 2015, the combination of these operating factors led to more positive composite underwriting ratios.
The substantial bottom line improvement in 2015 was driven by the very good performance of this segment’s basic underwriting and related services functions. Significant premiums and fees growth benefitted from stronger housing and commercial property transactions and the segment’s expanded market share. Net investment income edged up throughout the year from greater yields on a moderately larger investment portfolio. Lower claim and operating costs relative to net premiums and fees earned further contributed to an advancing bottom line.
Consistent with a run-off operating mode, the combined MI and CCI lines posted continued declines in earned premiums for 2015. Investment income was also down from depressed yields on the segment’s declining invested asset base.
Year-over-year comparisons of fourth quarter 2015 MI operating results benefitted from a lower claim ratio. The improvement stemmed from continued declines in reported delinquencies and higher rates at which reported defaults are cured or otherwise resolved without payment. Similar factors enhanced full year 2015 results although these were dampened by greater claim litigation costs in the second and third quarter of the year. Moreover, favorable developments of previously established claim reserves had a positive effect on reported mortgage guaranty claim ratios. Setting aside 2015’s claim litigation provisions, these positive outcomes reduced MI claim ratios by 38.4 and 50.6 percentage points in the final quarters of 2015 and 2014, respectively, and by 65.0 and 69.3 percentage points for all of 2015 and 2014, respectively.
The CCI run-off portion of RFIG’s operations reflected substantial volatility and were impacted adversely by litigation expense provisions in most quarterly and year-to-date periods of 2015 and 2014. CCI’s claim ratio for all of 2014 reflected even higher provisions due to a litigated claim settlement in an amount greater than originally anticipated.
Corporate and Other Operations – The combination of a small life and accident insurance business and the net costs associated with operations of the parent holding company and its internal services subsidiaries usually produce highly variable results. Earnings variations posted by these relatively minor elements of Old Republic’s business stem from volatility inherent to the small scale of life and accident insurance operations, and net interest costs related to external and intra-system financing arrangements. The much lower life & accident premium volume in 2015 periods reflects the transfer of such premiums from a life and accident subsidiary to a general insurance group affiliate. The effect of the transfer was negligible with respect to segmented pretax operating income (loss) trends.
The complete release is available here: Old Republic Results for Fourth Quarter and Full Year 2015
Source: Old Republic