Old Republic International Corporation — Q2 2023 Form 10-Q
Business context and period. The filing covers the quarter and six months ended June 30, 2023. Old Republic operates General Insurance, Title Insurance, and RFIG Run-off businesses, plus a small life and accident business. Amounts below are in millions of dollars unless noted.
Financial performance
- Q2: Total operating revenues were $1,828.8, down 14.1% year over year. Net income was $155.5, or $0.54 diluted per share, compared with a net loss of $40.1, or $0.13 per share, in Q2 2022. Pretax operating income excluding investment gains and losses was $227.3, down 13.5%; net income excluding investment gains and losses was $179.6, down 14.6%.
- First six months: Operating revenues were $3,561.3, down 15.0%. Net income was $355.4, or $1.22 diluted per share, versus $266.1, or $0.87 per share. Pretax operating income excluding investment gains and losses was $450.3, down 10.0%; adjusted net income on the same basis was $358.8, down 10.8%.
- Investment results: Net investment income rose 29.3% to $139.4 in Q2 and 29.5% to $277.2 for six months, primarily as fixed-income yields increased. Net investment losses were $30.4 in Q2 and $4.2 for six months, including equity fair-value losses of $32.6 and $34.6, respectively. In Q2 2022, total investment losses were $317.4.
- Underwriting: The consolidated combined ratio was 92.6% in both Q2 and the first half, versus 90.9% and 91.4% in the comparable 2022 periods. General Insurance’s combined ratio improved to 90.2% for Q2 and 89.7% for six months; Title Insurance’s rose to 96.9% and 98.1%, respectively.
- Cash flow and liquidity: Operating cash flow was $90.6 in Q2 and $247.2 for six months, compared with $124.7 and $403.2 in 2022. Cash was $96.3 at June 30. Cash and invested assets totaled $15,841.1.
- Balance sheet and debt: Total assets were $25,850.3, total liabilities $19,730.5, shareholders’ equity $6,119.8, and debt $1,590.5. Debt-to-equity was 26.0%; debt represented 20.6% of total capitalization. Book value per share was $21.78, up 3.4% from year-end 2022.
Material changes and drivers
- Title Insurance premiums and fees fell 36.9% in Q2 and 39.2% for six months as higher mortgage rates reduced mortgage originations and revenue in both direct and agency channels. Segment pretax operating income fell 68.3% and 72.6%, respectively.
- General Insurance premiums earned grew 5.2% in Q2 and 5.6% for six months, supported by rate increases, retention, and new business. Segment pretax operating income rose 33.6% and 34.6%, helped by higher investment income and favorable prior-year reserve development, chiefly in workers’ compensation and commercial auto.
- RFIG Run-off pretax operating income declined 40.7% in Q2 and 35.5% for six months. The business remains volatile; favorable reserve development reflected improved delinquency cure rates.
- Shareholders’ equity declined 0.9% from December 31, 2022, while book value per share increased. The company repurchased 14.0 million shares for $354.0 during the first half and paid $141.0 in dividends.
Outlook, risks, and unusual items
- No consolidated earnings guidance is provided. Management targets a General Insurance combined ratio of 90%–95% over a full underwriting cycle and emphasizes long-term results rather than quarterly performance.
- Management identifies loss-reserve adequacy and reinsurance recoverability as critical estimates. Actual claims and reserve development may differ materially from estimates and affect future results.
- Key sensitivities include insurance competition, claims frequency and severity, catastrophe and weather events, inflation, investment yields and interest rates, housing and mortgage conditions, and mortgage defaults. The company notes that fixed-income fair values are sensitive to interest rates; the portfolio had $565.6 of gross unrealized losses at June 30, primarily attributed to interest-rate changes.
- The company reported no material non-claim litigation exposures and no material changes to the risk factors in its 2022 Form 10-K. Disclosure controls were assessed as effective. It implemented a new investment accounting system during Q2 and adjusted related controls as needed.
- The company adopted the long-duration insurance contract accounting standard on January 1, 2023; the filing says the transition adjustment had no material effect on the consolidated financial statements. The SEC’s cybersecurity disclosure rules were issued after quarter-end, and the company was evaluating their requirements.
Important facts for investors to verify
- Track Title Insurance revenue and profitability against mortgage-rate and origination trends, and assess whether lower volume continues to pressure expense ratios.
- Evaluate the sustainability of General Insurance results, including the contribution of favorable prior-year reserve development and the reported current-year loss ratio.
- Review reserve development, reinsurance recoverables, and the concentration of unrealized losses in fixed-income securities as conditions change.
- Reconcile repurchase authorization capacity: the filing gives differing remaining-capacity figures, including approximately $175–$178 after subsequent repurchases and $264.7 at June 30 in the quarterly repurchase table.
- Monitor liquidity and plans for the $399.3 of senior notes due in 2024; management says it intends to have adequate liquidity to repay them if refinancing conditions are unfavorable.