Yahoo Finance Old Republic International Corporation (NYSE:ORI) Q1 2024 Earnings Call Transcript
Old Republic International Corporation (NYSE:ORI) Q1 2024 Earnings Call Transcript April 25, 2024
Old Republic International Corporation beats earnings expectations. Reported EPS is $0.67, expectations were $0.66. 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: Good afternoon. My name is Audra, and I will be your conference operator today. At this time, I would like to welcome everyone to the Old Republic International First Quarter 2024 Earnings Conference Call. Today's conference is being recorded. [Operator Instructions]. At this time, I would like to turn the conference over to Joe Calabrese with the Financial Relations Board. Please go ahead.
Joe Calabrese: Thank you. Good afternoon, everyone and thank you for joining us for the Old Republic conference call to discuss first quarter 2024 results. This morning, we distributed a copy of the press release and posted a separate financial supplement. Both of these 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 April 25, 2024. Risks associated with these statements can be found in the company's latest SEC filing. 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 again, everyone, and welcome to Old Republic's First Quarter 2024 Earnings Call. With me today is Frank Sodaro, our CFO of ORI, and Carolyn Monroe, our President and CEO of our Title Insurance business. Well, during the first quarter of 2024, we produced $231.5 million of consolidated pretax operating income. That's up from $222.9 million in 2023 despite the challenges that we'll talk about that we're seeing in Title insurance. Our consolidated combined ratio was 94.3%, a bit higher than the 92.7% last year. And primarily, that's because of the higher combined ratio we're seeing in Title Insurance. General Insurance's strong underwriting results continued into 2024, producing $220 million of pretax operating income, and that's a 14% increase year-over-year.
The General Insurance combined ratio was 90.3% in the quarter. In Title Insurance, higher mortgage interest rates and a slow real estate market presented us with some challenges, and that led to much lower pretax operating income of $2 million and a 100-point -- 102.5% combined ratio in the quarter. Our conservative reserving practices continued to produce favorable prior-year reserve development in both General Insurance and Title Insurance, and we'll talk about that a little bit more. Our balance sheet remains strong while we returned capital to shareholders through both dividends and share repurchases. Focused on the long term, we are investing in our new General Insurance underwriting subsidiaries as well as in technology, and that goes for both General Insurance and Title Insurance.
So with those introductory comments, I will now turn the discussion over to Frank Sodaro, and then Frank will turn things back to me to cover General Insurance, followed by Carolyn, who will discuss Title Insurance. And then as usual, we'll open up the conversation for Q&A. So with that, Frank, I turn the discussion over to you.
Francis Sodaro: Thank you, Craig, and good afternoon, everyone. This morning, we reported net operating income of $185 million compared to $179 million last year. On a per share basis, net operating income was $0.67 in the quarter up nearly, 10% from last year. Net investment income increased another 19% in the quarter, and that was driven by higher yields. Our average reinvestment rate on corporate bonds was 5%, while the comparable book yield on corporate bonds disposed of was 3.4%. Total bond portfolio book yield stands at 4.1% compared to 4% at the end of last year. Our investment portfolio mix remained consistent with last quarter. With regard to the bond portfolio, the quality also remained very high with 99% in investment-grade securities, and the average maturity was consistent at 4.3 years.
During the quarter, the valuation of our bond portfolio decreased by approximately $100 million, driven by higher interest rates, while the value of our stock portfolio increased by about . Much of the increased value was realized in the quarter so we ended in an unrealized gain position consistent with last year-end of just over $1.1 billion. From a loss reserve perspective, General Insurance and Title both recognized favorable development in the quarter, leading to a benefit of 2.3 percentage points to the consolidated loss ratio. This compares to favorable development of 4.5 points last year. We are still expecting to close on the sale of our run-off mortgage insurance operation during the second quarter. Activity from this operation is immaterial to our consolidated results and due to the pending sale, no longer has an impact on our bottom line.
We ended the quarter with book value per share of $23.83, which inclusive of dividends equated to an increase of 3.4%, and that resulted from our strong operating earnings and higher investment valuations. In the quarter, we paid $72 million in dividends and repurchased $183 million worth of our shares for a total of just over $264 million returned to shareholders. Now since the end of the quarter, we repurchased another $146 million worth of shares, leaving us with about remaining in our current repurchase program. I'll now turn the call back over to Craig for a discussion of General Insurance.
Craig Smiddy: Okay. Frank, thanks for that. General Insurance net written premiums were up 14% in the quarter with strong renewal retention ratios, rate increases on most lines of coverage, new business growth and premium production kicking in, in our new underwriting subsidiaries. D&O and workers' compensation are the lines of coverage, where we do continue to see rate decreases. And I'll talk a little bit more about that when I discuss workers' compensation. As mentioned in my opening remarks, General Insurance pretax operating income was $220 million, and the combined ratio was 90.3%. So we continue to grow at a very profitable level in General Insurance. The loss ratio for the quarter was $62.7 million, and that included 2.5 points of favorable reserve development.
The expense ratio was steady at 26 -- excuse me, 27.6. Turning to our two largest lines of coverage, commercial auto net premiums written grew by more than 15% in the quarter, while the loss ratio came in at 71.9% compared to 73.7% last year, and we continue to experience favorable development from prior years in this line of coverage. Rate increases were in the 10% range, and that continues to be commensurate with the loss trend that we're observing. Workers' compensation net premiums written increased by 4.5% in the quarter, while the loss ratio came in at 47% compared to last year. And here, too, we continue to experience favorable prior-year loss development. Frequency for workers' compensation continues the long trend downward, while the severity trend remains relatively stable.
So given the higher trend in payroll, which as a reminder, is our rating base, we think our rate levels remain adequate even with rate decreases of approximately 5% for workers' compensation. We expect solid growth and profitability in General Insurance to continue throughout 2024, reflecting the success of our specialty strategy, our excellence initiatives and our new underwriting subsidiaries. So I'll now turn the discussion over to Carolyn to report on Title Insurance. Carolyn?
Carolyn Monroe: Thank you, Craig. The Title Group reported premium and fee revenues for the quarter of $545 million. This represents a decrease of 6% from first quarter 2023, Directly produced premium and fees were up 8% from first quarter 2023, while agency-produced premiums were down 10%. As a reminder, agency-produced business represents the bulk of our business and is generally reported on about a 1 quarter lag compared to direct business. Commercial premiums decreased 24% this quarter compared to the first quarter of 2023. Commercial premiums were of our earned premiums this quarter compared to 25% in the first quarter of 2023. The nationwide expanded and transformed footprint of our commercial team, along with our commercial agency services group positions, us well to win the market rebounds.
While challenging market conditions and interest rate uncertainties persist as the second quarter begins, we believe the trends in our order counts, along with a modest uptick in our directly produced revenues or positive signals as we head into the seasonally more active market period. Our pretax operating income of $2 million compared to in first quarter 2023. Our combined ratio of 102.5% compared to 99.3% in the first quarter of 2023. And as a reminder, the first quarter of last year results were impacted by the recovery of a $17 million state sales tax assessment. Excluding this favorable impact, our expense ratio and pretax operating income for the quarter was roughly in line with the first quarter of 2023. We continue to diligently manage our expenses.
However, our expense ratio remains elevated and reflects the nature of certain fixed costs decreasing at a slower pace than the drop in revenues. As we have been discussing on past calls, our leadership team is focused on executing our strategic plan and the driving need to stay on the leading edge of technology. Our strategic plan is built around our agents and our people. One of the cornerstones of the plan is a focus on innovation that enables the success of our agents. As we continue to emphasize, this includes streamlining the closing process through fully digital and hybrid executed on a single, secure collaborative platform and offering our agents a comprehensive approach to help address wire fraud and assist with payoff verification.
We are also providing state-of-the-art cloud-based title production and transaction management solutions to modernize and streamline operations. We believe providing the best tools to our internal teams and agents will provide us with an advantage in this market in when the market improves. One last item because we have received a few questions recently regarding proposals at the federal level that could change how Title Insurance is transacted. These include the use of attorney opinion letters in place of Title Insurance and changes to who pays for or even waivers for Title Insurance in certain transactions. We would characterize these developments as early stage and still subject to much debate and lobbying. But considering the recent press, we wanted to note that we are tracking these developments and at this time, do not anticipate any significant implications for our business.
Thank you, and I'll now turn the call back to Craig.
Craig Smiddy: Thank you, Carolyn. So we enter 2024 with a continuation of profitable growth in General Insurance, mitigating the lower revenue and profit levels in Title Insurance. And for the rest of 2024, we remain optimistic for General Insurance, while we remain of the view that Title Insurance will continue to face mortgage, interest rate and real estate marketplace challenges. So that concludes our prepared remarks, and we'll now open up the discussion and Q&A, and I'll either answer your questions or I'll ask Frank or Carolyn to respond.
See also
20 Countries That Increased Oil Production the Most in A Decade and
25 Best Countries for Expats With Low Taxes and High Quality of Life.
To continue reading the Q&A session, please click here.
