Business context and reporting period
Old Republic International Corporation’s unaudited Form 10-Q covers the quarter ended March 31, 2022. The insurer operates through General Insurance, Title Insurance and RFIG Run-off; a small life and accident business is reported in Corporate & Other. Amounts below are in millions of dollars except per-share data and ratios.
Financial performance and position
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Total revenues | $2,206.6 | $2,355.0 |
| Net premiums and fees earned | $1,919.0 | $1,838.9; up 4.4% |
| Net investment income | $106.2 | $104.3; up 1.8% |
| Net income | $306.3 | $502.1 |
| Diluted EPS | $1.00 | $1.68 |
| Pretax operating income excluding investment gains | $237.5 | $255.1; down 6.9% |
| Net income excluding investment gains | $191.7 | $206.3; down 7.0% |
| Operating cash flow | $278.4 | $296.0 |
Investment gains were $145.1 pretax, versus $375.4 a year earlier, including equity-security unrealized gains of $79.8 versus $367.5. This difference was the main reason GAAP net income declined more sharply than operating income excluding investment gains. The consolidated combined ratio was 91.9%, compared with 90.9%.
General Insurance premiums earned grew 6.0%; segment pretax operating income increased 1.2% to $142.5, with a 91.6% combined ratio. Title premiums and fees grew 3.2%, but segment pretax operating income fell 21.9% to $80.9 as expenses rose and the combined ratio increased to 92.9%. RFIG Run-off pretax operating income rose to $9.7 from $4.9, reflecting lower claims.
At March 31, 2022, total assets were $25,118.8, shareholders’ equity was $6,750.1 and debt was $1,594.2. Debt represented 19.1% of total capitalization; debt-to-equity was 23.6%. Cash was $95.1, down from $158.1 at year-end. Book value per share was $22.23, versus $22.76 at December 31, 2021. Fixed-income fair value was $10,736.2 against amortized cost of $11,007.8; management attributed the decline in equity primarily to interest-rate-driven unrealized losses. The company reported no allowance for credit losses on fixed-income securities.
Material changes versus the prior period
- Premium and fee growth was led by General Insurance; Title growth was modest and its operating income declined.
- Higher mortgage rates reduced Title refinance activity. Management expected both direct and agency Title revenues to be lower for the rest of 2022 than in the prior-year periods; purchase activity could also be affected if rates continued to rise.
- General Insurance’s expense ratio rose to 27.7% from 25.6%, while its claim ratio improved to 63.9% from 66.0%; the combined ratio remained 91.6%.
- Investment gains fell substantially year over year. The quarter also included a $507.3 pretax decline in unrealized fixed-income values reflected outside net income, principally due to higher interest rates.
- The quarterly common dividend was $0.23 per share, versus $0.22 a year earlier. RFIG subsidiaries paid an extraordinary $35.0 dividend to the parent.
Outlook, commentary and risks
Management emphasizes long-term underwriting performance and balance-sheet strength and evaluates operating results excluding investment gains and losses. It stated a target General Insurance combined ratio range of 90%–95%; this is a segment target, not consolidated earnings guidance. The filing provides no numerical consolidated earnings or revenue guidance.
Management reported favorable prior-year loss-reserve development across all operating segments in Q1. General Insurance development largely reflected workers’ compensation and commercial auto experience; Title development was concentrated in 2017–2019 accident years. Management cautioned that reserve estimates are uncertain and actual claim costs may differ materially. Rising interest rates can reduce fixed-income fair values and book value, while affecting investment yields over time. Other disclosed risks include insurance competition, claims frequency and severity, inflation, housing and mortgage trends, economic conditions and cybersecurity. The company said risk factors were not materially changed from its 2021 Form 10-K.
Parent liquidity depends principally on subsidiary dividends and intercompany interest; insurance-company dividends are subject to regulatory restrictions. Based on year-end statutory balances, the company stated it could receive up to $982.0 in ordinary subsidiary dividends in 2022 without prior regulatory approval. No material non-claim litigation exposures were reported at quarter-end. Disclosure controls were assessed as effective, with no material change in internal control reported during the quarter.
Important facts for investors to verify
- How much of earnings and EPS trends reflect underwriting and investment income versus volatile realized and unrealized investment gains.
- Whether Title revenue and margins track management’s expectation for lower revenues through 2022 as mortgage rates and refinance activity change.
- Whether General Insurance premium growth and favorable reserve development persist, and how claims inflation or adverse development could affect reserves.
- The sensitivity of fixed-income fair values and reported equity to interest rates, and the effect of any further market losses on book value.
- Debt maturities, holding-company cash needs and the availability of regulated subsidiary dividends to support obligations and shareholder distributions.