Old Republic International Corporation — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Amounts are in millions of dollars unless otherwise stated. Old Republic is an insurance holding company operating General Insurance, Title Insurance, and RFIG Run-off segments.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Operating revenues | $1,947.0 | $2,098.2 | $5,508.4 | $6,287.7 |
| Net income (loss) | $52.6 | $(91.7) | $408.0 | $174.3 |
| Diluted EPS | $0.19 | $(0.31) | $1.42 | $0.57 |
| Pretax operating income, excluding investment gains and losses | $250.8 | $257.5 | $701.2 | $757.9 |
| Combined ratio | 91.9% | 91.4% | 92.4% | 91.4% |
| Net investment income | $145.9 | $115.1 | $423.1 | $329.2 |
GAAP net income included pretax investment losses of $186.9 in Q3 and $191.1 for the first nine months, mainly reflecting unrealized equity-security valuation losses. Net income excluding investment losses was $200.2 for Q3 and $559.0 for the nine months. Operating cash flow for the nine months was $597.0, versus $903.4 in 2022; period-end cash was $152.1.
Segments and material year-over-year changes
- General Insurance: Premiums earned rose 10.6% in Q3 and 7.3% year to date. Pretax operating income increased 28.6% and 32.3%, respectively, supported by premium growth, higher investment income, and favorable prior-year loss development. Combined ratios were 89.0% for Q3 and 89.5% year to date.
- Title Insurance: Premiums and fees earned fell 29.3% in Q3 and 36.0% year to date, as higher mortgage rates reduced originations. Pretax operating income declined 48.9% and 66.0%, respectively; year-to-date combined ratio increased to 97.6% from 92.3%.
- RFIG Run-off: Pretax operating income decreased 50.6% in Q3 and 40.0% year to date. The closed mortgage insurance book continues to shrink, while favorable reserve development from improved delinquency cure rates contributed to results.
- Consolidated premiums and fees earned declined 9.4% in Q3 and 15.1% year to date, principally because of Title Insurance. Net investment income rose 26.7% and 28.5%, respectively, primarily due to higher fixed-income yields.
Balance sheet, capital, and liquidity
At September 30, total assets were $26,400.5, total liabilities $20,484.8, and common shareholders’ equity $5,915.6. Equity was down 4.2% from year-end 2022, while book value per common share increased to $21.37 from $21.07. The reported decline in equity reflected shareholder distributions and investment-related valuation changes, among other items.
Total investments were $15,413.2, including fixed-income securities of $11,547.4 and equity securities of $2,685.6. The fixed-income portfolio was 98.9% investment grade. Debt was $1,590.9; debt-to-equity was 26.9%, and debt represented 21.2% of total capitalization. The company said it plans to maintain liquidity to repay $399.4 of senior notes due in October 2024 if refinancing conditions are unfavorable. It reported $509.2 received in 2023 from up to $924.9 in ordinary subsidiary dividends available without prior regulatory approval.
For the first nine months, the company returned approximately $684 to shareholders: $209 in dividends and nearly $475 in repurchases. It repurchased 18.8 million shares at an average $25.44. After quarter-end, it repurchased another 2.0 million shares for $56.0; approximately $83 remained under the May 2023 authorization as of November 1.
Outlook, risks, and unusual items
- No specific consolidated earnings or revenue forecast is provided. Management emphasizes long-term underwriting performance and balance-sheet strength; its General Insurance target is a 90%–95% combined ratio over a full underwriting cycle.
- Management cited mortgage rates and housing activity as significant drivers for Title Insurance and RFIG. RFIG results are expected to remain variable; the company is exploring strategic alternatives, including a sale.
- Insurance results are exposed to reserve-estimation uncertainty, claims inflation and severity, catastrophe events, competition, interest rates, and changes in law. Management cautions that actual loss costs may differ materially from reserves. It reported favorable prior-year development, primarily in workers’ compensation and, to a lesser extent, commercial auto, partly offset by unfavorable general-liability development.
- A one-time $10.7 charge in Q3 related to changes in the structure of deferred employee incentive awards. The company adopted the long-duration insurance accounting standard on January 1, 2023; it reported no material impact on consolidated financial statements.
- The company reported no material non-claim litigation exposures and no material changes to the risk factors in its 2022 Form 10-K. It said disclosure controls were effective and there were no materially affecting changes in internal control during the quarter.
Important facts for investors to verify
- Whether General Insurance premium growth and favorable reserve development persist, and how much results depend on prior-year reserve releases.
- Whether Title Insurance earnings stabilize as mortgage origination activity changes, and the effect of fixed expenses on its elevated expense ratio.
- The trend in RFIG delinquencies, cure rates, reserve development, and any outcome from the strategic-alternatives review.
- Investment portfolio sensitivity to interest rates: fixed-income securities had $642.3 of gross unrealized losses at quarter-end, which management primarily attributed to interest-rate changes.
- Liquidity and refinancing plans for the 2024 notes, alongside continued dividends and share repurchases.