Chicago, IL – Old Republic International Corporation (NYSE: ORI) recently reported pretax income, excluding investment gains (losses), of $222.9 for the quarter. General Insurance pretax operating income rose 35.6%, while Title Insurance results were negatively impacted by the effect of elevated mortgage interest rates. Solid General Insurance underwriting results led to a consolidated combined ratio of 92.7%.
Consolidated net premiums and fees earned were down 19.0% for the quarter, with Title Insurance dropping 41.6% as a result of lower revenues in both direct and agency operations, while General Insurance grew 5.9%. Net investment income increased significantly in the quarter, primarily due to higher investment yields earned.
During the quarter, the Company returned total capital to shareholders of approximately $204, comprised of $71 in dividends, and nearly $133 of share repurchases (5.3 million shares at an average price of $24.85 per share). Following the close of the quarter, the Company repurchased $35 of additional shares (1.4 million shares at an average price of $24.97 per share), thereby completing its repurchase program under the most recent authorization.
Book value per share grew to $21.91 as of March 31, 2023, reflecting higher fair market values in the investment portfolio during the quarter and operating earnings. With the addition of dividends declared during the quarter, this was an increase of 5.1% over year-end 2022.
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, 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 5.9% for the quarter, driven by premium rate increases, high renewal retention ratios, and new business production. Premium growth was experienced across most lines of coverage, and was most pronounced within commercial auto. This line achieved strong rate increases which were partially offset by rate declines within public D&O and workers’ compensation coverages. Net investment income increased significantly in the quarter, reflecting higher investment yields earned and to a lesser extent, growth in the invested asset base.
The reported loss ratio for General Insurance improved considerably in the quarter, inclusive of favorable reserve development from prior periods. Favorable development of 5.5% came predominantly from the commercial auto and workers’ compensation lines of coverage. The current period loss costs reflect several years of premium rate increases, underwriting actions, and a shift in the line of coverage mix. The first quarter expense ratio is consistent with the prior quarter and the current line of coverage mix. 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 quarter. For General Insurance, we target combined ratios between 90% and 95% over a full underwriting cycle, recognizing that quarterly and annual ratios and trends may deviate from this range, particularly given the long claim payment patterns associated with the business.
The complete results release is available here: Old Republic Results for First Quarter 2023
Source: Old Republic