Old Republic International Corporation — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; comparisons are primarily with FY2020. Old Republic is an insurance holding company operating through General Insurance, Title Insurance, and RFIG Run-off segments, with a small life and accident business in Corporate & Other.
Financial performance
- Revenue: Premiums and fees earned were $8.004 billion, up 18.8%. Total operating revenues were $8.584 billion, up 17.5%; total revenues including investment gains were $9.342 billion.
- Profit: Net income was $1.534 billion ($5.05 diluted EPS), versus $558.6 million ($1.87) in 2020. Results included $751.1 million of unrealized equity-security gains, compared with a $156.2 million unrealized loss in 2020. Excluding all investment gains and losses, pretax income was $1.164 billion, up 40.2%; net income was $935.9 million ($3.08 diluted EPS), up 39.5%.
- Underwriting and margins: Consolidated combined ratio improved to 89.9% from 93.3%. General Insurance’s ratio improved to 91.3% from 95.5%; Title Insurance’s improved to 89.3% from 90.7%. Lower combined ratios indicate stronger underwriting results.
- Cash flow: Operating cash flow was $1.312 billion, compared with $1.185 billion. Investing activities used $936.5 million; financing activities used $335.7 million. Year-end cash was $158.1 million.
- Investments and liquidity: Cash and invested assets totaled $16.819 billion, up 8.3%. Net investment income was $434.3 million, down 1.1%, as asset growth was offset by lower yields. Approximately 68% of the portfolio was fixed maturity and short-term investments and 32% equity securities.
- Debt and capital: Debt was $1.589 billion, up from $966.4 million, following a $650 million senior-note issuance in June 2021 at 3.85%, due 2051. Debt was 18.7% of total capitalization, versus 13.5%. Shareholders’ equity was $6.893 billion; book value was $22.76 per share, up from $20.75.
- Dividends: Cash dividends were $2.38 per share for the year; the board declared a $1.50-per-share special dividend in August 2021. Subsidiaries may pay up to approximately $982 million in ordinary dividends to the parent in 2022 without prior regulatory approval.
Material changes and segment results
- General Insurance: Earned premiums rose 4.8% and pretax operating income increased 34.1% to $589.6 million. Results benefited from rate increases, retention and new business, lower current-period claim provisions, and favorable prior-year reserve development.
- Title Insurance: Premiums and fees rose 34.0% to $4.404 billion; pretax operating income increased 49.9% to $515.7 million. A strong real estate market and low interest rates supported activity, though refinancing declined beginning in 2021.
- RFIG Run-off: Pretax operating income was $32.8 million, versus $9.8 million. Lower claim costs reflected fewer new delinquencies, better cures and lower severity; earned premiums continued to fall with declining risk in force.
- Prior-year claims: Favorable reserve development totaled $210.6 million in 2021, versus $83.8 million in 2020. Consolidated claim reserves were $11.426 billion gross and $7.300 billion net of reinsurance at year-end.
Outlook, risks and unusual items
- The filing provides no specific consolidated earnings or revenue guidance. Management emphasizes evaluating performance over multi-year insurance cycles. Its General Insurance long-term targets, assuming the current business mix, are claim ratios in the high-60% to low-70% range, expense ratios of 25% or below, and combined ratios of 90%–95%.
- Management said COVID-19 had not materially affected overall claims experience, apart from elevated RFIG delinquencies and claims in 2020, but warned that new variants or economic disruption could reduce demand, increase claims or affect investments.
- Key risks include uncertainty in long-tail loss reserves and potential adverse development; interest-rate and equity-market movements; real estate transaction levels and concentration in Florida (about 19% of Title segment revenue); reinsurance recoverability and counterparty concentration; catastrophe and terrorism losses; cybersecurity incidents; regulation; and competition. Workers’ compensation insurers remain liable for losses above reinsurance limits.
- Asbestos and environmental reserves were $118.1 million gross and $77.2 million net. Management notes these exposures are unusually difficult to estimate. No material non-claim litigation exposure was reported at year-end.
- KPMG issued an unqualified opinion on the financial statements and internal controls. Its critical audit matter was estimating loss, claim and settlement expense reserves, which requires judgment about expected claim ratios.
Important facts for investors to verify
- How much of 2021’s earnings growth reflects repeatable underwriting improvement versus the $751.1 million unrealized equity gain and unusually high favorable reserve development.
- Whether General Insurance pricing and claims trends remain adequate as claim severity, inflation and long-tail liabilities develop.
- How Title Insurance earnings respond to lower refinancing activity, changing housing conditions, and the segment’s dependence on independent agents and Florida.
- Reinsurance recoverability and exposure to major reinsurers, including the largest counterparty’s share of recoverables.
- Holding-company liquidity, regulatory limits on subsidiary dividends, debt service, and the sustainability of regular and special shareholder dividends.
- Portfolio sensitivity to interest rates and equity markets, including the effect of investment-value changes on earnings and equity.