Chicago, IL – Old Republic International Corporation (NYSE: ORI) recently reported pretax income, excluding investment gains (losses), of $262.8 for the quarter and $500.4 for the first six months of 2022. The decline compared to the 2021 periods is within expectations, with General Insurance pretax operating income increasing nearly 12%, while the effect of increasing mortgage interest rates reduced Title Insurance results. Both General Insurance and Title Insurance produced solid underwriting results that drove a consolidated combined ratio of 90.9% and 91.4% for the quarter and first six months of 2022, respectively.
Consolidated net premiums and fees earned were relatively consistent for the quarter, with General Insurance net earned premiums growing 8.8%, offset by a 7.1% decline in Title Insurance net premiums and fees as a result of lower revenues in both direct and agency operations. For the first six months, consolidated net premiums and fees earned were up 2.0%, reflecting growth in General Insurance of 7.4%, partially offset by a 2.3% decline in Title Insurance. Net investment income increased slightly in both 2022 periods, reflecting growth in the invested asset base, offset by lower investment yields earned.
Book value per share was $20.99 as of June 30, 2022, reflecting declining fair market values in both the fixed income and equity portfolios, partially offset by operating earnings. With the addition of dividends declared during the first six months, this was a decrease of 5.8% over year-end 2021.
Old Republic’s business is managed for the long run. In this context management’s key objectives are to achieve highly profitable operating results over the long term, and to ensure balance sheet strength for the primary needs of the insurance subsidiaries’ underwriting and related services business. In this view, the evaluation of periodic and long-term results excludes consideration of all investment gains (losses). Under Generally Accepted Accounting Principles (GAAP), however, net income, inclusive of investment gains (losses), is the measure of total profitability.
In management’s opinion, the focus on income excluding investment gains (losses), also described herein as segment pretax operating income (loss), provides a better way to analyze, evaluate, and establish accountability for the results of the insurance operations. The inclusion of realized investment gains (losses) in net income can mask trends in operating results, because such realizations are often highly discretionary. Similarly, the inclusion of unrealized investment gains (losses) in equity securities can further distort such operating results with significant period-to-period fluctuations.
General Insurance net premiums earned increased 8.8% and 7.4% for the quarter and first six months, respectively, with rising premiums in all major lines of coverage. Premium rate increases for most lines of coverage, high renewal retention ratios, and new business production all contributed. Net investment income decreased in both 2022 periods, reflecting lower investment yields earned, partially offset by growth in the invested asset base.
The reported loss ratio for General Insurance improved in the quarter, inclusive of favorable reserve development from prior periods and a lower current period loss provision, attributable to several years of premium rate increases, underwriting actions, and a shift in the line of coverage mix. Favorable development of 1.9% was lower in the quarter with continued favorable development in the commercial auto and workers’ compensation lines of coverage, partially offset by unfavorable development in the financial indemnity line of coverage.
The second quarter and first six month expense ratios were elevated compared to the same periods last year, generally reflecting the shift in line of coverage mix, and an increase in employee related costs. Investments in new products and geographies in recent years have diversified the General Insurance business, resulting in shifts in the lines of coverage mix toward lines with higher expense ratios and lower current period loss ratios.
Together, these factors produced highly profitable combined ratios and greater pretax operating income for the periods reported.
The complete results release is available here: Old Republic Results for Second Quarter and First Half 2022
Source: Old Republic