Old Republic International Corporation — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual filing, not a standalone fourth-quarter report. Old Republic is an insurance holding company operating primarily in General Insurance, Title Insurance, and RFIG mortgage insurance run-off.
Financial performance
| Metric | 2022 | 2021 |
|---|---|---|
| Total operating revenues, excluding investment gains/losses | $8.285 billion | $8.584 billion |
| Net premiums and fees earned | $7.675 billion | $8.004 billion |
| Net investment income | $459.5 million | $434.3 million |
| Pretax operating income, excluding investment gains/losses | $1.059 billion | $1.164 billion |
| Net investment gains (losses) | $(201.1) million | $758.0 million |
| Net income | $686.4 million | $1.534 billion |
| Diluted EPS | $2.26 | $5.05 |
| Operating cash flow | $1.171 billion | $1.312 billion |
| Consolidated combined ratio | 91.0% | 89.9% |
Management’s preferred operating measure—pretax income excluding investment gains and losses—declined 9.1%. GAAP net income fell more sharply, principally because 2022 included $263.4 million of unrealized losses on equity securities, compared with $751.1 million of unrealized gains in 2021. Net income excluding investment gains/losses was $845.1 million, or $2.79 per diluted share.
Segments and material changes
- General Insurance: Earned premiums rose 7.1% to $3.809 billion; pretax operating income increased 17.0% to $689.8 million. The combined ratio improved to 89.5% from 91.3%, helped by favorable prior-year reserve development and improved current-year loss ratios. Hurricane Ian affected property results.
- Title Insurance: Premiums and fees declined 13.0% to $3.834 billion as higher mortgage rates sharply reduced refinancing activity and also weighed on purchase activity. Pretax operating income fell 40.1% to $308.8 million; the combined ratio rose to 93.2% from 89.3%. The 2022 expense ratio included a $17.2 million state sales tax assessment; the company is pursuing recovery.
- RFIG run-off: Earned premiums declined 28.9% to $23.2 million as the insured risk base continued to shrink. Pretax operating income was $35.2 million, supported primarily by favorable reserve development. The business is closed to new underwriting.
- Reserves: Prior-year loss reserves developed favorably by $282.6 million in 2022, versus $210.6 million in 2021. The reported consolidated loss ratio benefited from 3.7 percentage points of favorable prior-year development.
Balance sheet, liquidity and capital
- Total assets were $25.159 billion; shareholders’ equity was $6.166 billion, down from $6.893 billion. Book value per share declined to $21.05 from $22.76, principally reflecting lower investment fair values, partly offset by operating earnings.
- Cash and invested assets totaled $16.048 billion, down 4.6%. The portfolio was approximately 80% fixed income and short-term investments and 20% equities after portfolio rebalancing. Fixed-income securities were 98.5% investment grade; the year-end fixed-income portfolio yield was 3.32%.
- Debt was $1.597 billion, and debt represented 20.6% of total capitalization. Senior notes include $399 million due 2024, $548 million due 2026, and $643 million due 2051.
- As an insurance holding company, the parent depends on subsidiary distributions. Up to $924.9 million of ordinary dividends could be paid upstream in 2023 without prior regulatory approval; subsidiary dividends remain subject to regulatory limits.
- The company returned $862.0 million to shareholders in 2022: $580.7 million in dividends and $281.2 million in share repurchases. It declared a $1.00-per-share special dividend and authorized a $450 million repurchase program.
Outlook, risks and unusual items
Management stated that Title Insurance revenues were expected to continue facing headwinds into 2023 because of mortgage-rate-driven declines in refinancing and purchase activity. It targets a 90%–95% General Insurance combined ratio over a full underwriting cycle, while cautioning that annual results may vary. The filing provides no numerical consolidated earnings or revenue guidance.
- Insurance results depend on estimates of long-tail claims and loss reserves; actual ultimate losses may differ materially. Reserve estimation was the auditor’s critical audit matter.
- Other key exposures include catastrophe losses and limits of reinsurance, reinsurer and counterparty credit risk, economic and real-estate downturns, competition, cybersecurity and operational disruption, regulation, litigation, and potential adverse reserve development.
- 2022 investment activity included sales of more than $2 billion of equities and fixed-income sales for portfolio rebalancing and tax planning. The company recognized $123.5 million of fixed-income impairment losses on securities it intended to sell and subsequently disposed of.
- At year-end, fixed-income securities had $610.1 million of gross unrealized losses, which management attributed primarily to higher interest rates. The company reported no fixed-income investments in default.
- The audit opinion was unmodified, and the auditor concluded internal control over financial reporting was effective. The company also reported no material non-claim litigation exposures at year-end.
Investor verification priorities
- Track Title Insurance volumes, margins and the pace of any mortgage-market recovery, including whether the $17.2 million sales-tax assessment is recovered.
- Assess General Insurance pricing and loss trends, catastrophe exposure, and the sustainability of favorable reserve development.
- Review reserve sensitivity and reinsurance recoverability, particularly given long-tail claims and the concentration among the ten largest General Insurance reinsurers.
- Monitor investment portfolio fair values, reinvestment yields and potential realized losses, alongside the effect of market changes on book value.
- Confirm subsidiary dividend capacity, debt maturities, and the sustainability of regular and special shareholder distributions and repurchases.