Old Republic International Corporation — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. Although the request identifies 2020 Q4, this filing is an annual report; it also reports fourth-quarter results. Amounts are in U.S. dollars, generally millions except per-share data.
Business context
Old Republic is an insurance holding company operating through General Insurance, Title Insurance, and the RFIG mortgage-insurance run-off business; a small life and accident business is included in Corporate and Other. Management emphasizes long-term underwriting performance and financial strength. Mortgage guaranty insurers stopped writing new business in 2011.
Financial results and key metrics
| Metric | 2020 | 2019 |
|---|---|---|
| Operating revenues, excluding investment gains and losses | $7,308.0 | $6,824.4 |
| Net premiums and fees earned | $6,737.8 | $6,241.1 |
| Net investment income | $438.9 | $450.7 |
| Investment gains (losses), including equity fair-value changes | $(142.0) | $636.1 |
| Net income | $558.6 | $1,056.4 |
| Net income excluding investment gains and losses | $670.8 | $554.2 |
| Diluted EPS | $1.87 | $3.51 |
| Diluted EPS excluding investment gains and losses | $2.24 | $1.84 |
| Operating cash flow | $1,185.0 | $936.2 |
| Consolidated combined ratio | 93.3% | 95.3% |
| Total assets | $22,815.2 | $21,076.3 |
| Shareholders’ equity / book value per share | $6,186.6 / $20.75 | $6,000.1 / $19.98 |
| Debt | $966.4 | $974.0 |
Fourth-quarter 2020 net income was $519.7, or $1.74 per diluted share. Quarterly results were affected by investment-market movements and should not be treated as a forecast of future periods.
Debt was 13.5% of total capitalization at year-end. Cash and invested assets totaled $15,535.3. Management said liquidity was sufficient for expected claims, expenses, debt service, and dividends; it did not expect to need additional capital. Up to $699.3 of subsidiary dividends could be paid to the parent in 2021 without prior regulatory approval, subject to applicable restrictions.
Material changes versus prior period
- Operating revenues increased 7.1%; net premiums and fees earned rose 8.0%. Title growth more than offset slightly lower General Insurance premiums and declining RFIG run-off premiums.
- Net income fell 47.1%, principally reflecting a $142.0 investment loss in 2020 versus a $636.1 investment gain in 2019. Excluding investment gains and losses, net income increased 21.0%.
- The consolidated combined ratio improved to 93.3% from 95.3%, supporting stronger operating results. General Insurance pretax operating income rose 18.8%; Title pretax operating income rose 49.0%.
- RFIG pretax operating income declined to $9.8 from $30.3, with a 111.9% combined ratio, as pandemic-related delinquencies increased reserves while the run-off book continued to shrink.
- Net investment income fell 2.6%, as lower yields outweighed growth in invested assets. Operating cash flow increased to $1,185.0.
Outlook, risks and unusual items
- Outlook: No specific consolidated earnings or revenue guidance is provided. Management’s long-term General Insurance targets, assuming the current coverage mix, are a claim ratio in the high-60% to low-70% range, expense ratio of 25% or below, and combined ratio of 90%–95%. Management said it believed financial strength would support policyholder obligations through pandemic-related challenges.
- COVID-19: The pandemic modestly reduced General Insurance earned premiums; residential real estate and Title activity remained strong in 2020. Future premiums, expenses, and claims remain uncertain. RFIG outcomes depend in part on employment, housing conditions, and the effectiveness and duration of loan forbearance and other relief programs.
- Reserves: Loss and claim reserves were $10,671.0 gross at year-end. Prior-year reserve development was favorable by $83.8 in 2020. Estimation is inherently uncertain, particularly for long-tail liability claims and mortgage defaults; the auditor identified reserve estimation as a critical audit matter.
- Investments: Equity securities generated a $156.2 unrealized loss recognized in earnings, while fixed maturities gained $342.7 in fair value through other comprehensive income. No fixed-maturity credit impairments were recorded in 2020. Energy-sector investments and broader market volatility remain risks.
- Capital return: The board declared a special $1.00-per-share dividend in December 2020, payable January 15, 2021. Total 2020 dividends per share reported were $1.84, including that special dividend. Future dividends remain subject to board discretion, subsidiary earnings, and regulatory limits.
- Other exposures: Risks include reinsurer and other counterparty credit, catastrophe and terrorism losses, cybersecurity, regulation, litigation, and real-estate market weakness. The company reported no material non-claim litigation exposure at year-end.
- Accounting and audit: Effective January 1, 2020, the company adopted the current expected credit loss standard; the year-end credit-loss allowance was $36.5. It reclassified its tax-exempt municipal-bond portfolio from held-to-maturity to available-for-sale in June 2020. KPMG issued an unqualified opinion on the financial statements and internal controls.
Important facts for investors to verify
- How much of improved operating earnings reflects sustainable underwriting performance versus favorable prior-year reserve development and changing business mix.
- Whether pandemic-related mortgage delinquencies and forbearance expirations lead to higher RFIG claims or reserve needs.
- The adequacy of long-tail General Insurance reserves, including workers’ compensation and asbestos/environmental exposures, and the collectability of reinsurance recoverables.
- Whether Title’s unusually strong 2020 home-sale and refinance activity can persist, given its dependence on real-estate volumes, independent agents, and Florida’s contribution to segment revenue.
- The effect of equity-market volatility, lower investment yields, and credit deterioration—particularly in energy—on earnings, book value, and investment income.
- Parent-company liquidity and dividend capacity, including regulatory limits on subsidiary distributions and the scheduled $400.0 senior-note maturity in 2024.