Old Republic International Corporation — Q1 2021 Form 10-Q
Business context and reporting period
Quarter ended March 31, 2021. Old Republic is an insurance holding company operating primarily in General Insurance, Title Insurance, and the RFIG mortgage-insurance run-off business.
Financial performance and position
- Total revenue was $2.36 billion, versus $764.0 million in Q1 2020. The comparison was heavily affected by equity-market valuation changes: Q1 2021 included $367.5 million of unrealized equity-security gains, while Q1 2020 included $962.7 million of unrealized losses.
- Net income was $502.1 million, or $1.68 per diluted share, compared with a net loss of $604.8 million, or $2.01 per diluted share. Excluding investment gains and losses, net income was $206.3 million, or $0.69 per diluted share, up 46.5% from $140.8 million, or $0.47 per share.
- Operating revenues, excluding investment gains and losses, were $1.98 billion, up 15.9%. Net premiums and fees earned rose 17.9% to $1.84 billion; net investment income declined 8.6% to $104.3 million as lower yields outweighed growth in invested assets.
- Combined underwriting ratio improved to 90.9% from 95.1%. General Insurance pretax operating income rose 27.9% to $140.8 million; Title Insurance pretax operating income increased 139.3% to $103.7 million. RFIG run-off pretax operating income declined 40.9% to $4.9 million.
- Operating cash flow was $296.0 million, versus $216.3 million. Cash at quarter-end was $123.4 million. Financing cash outflow was $379.7 million, including $304.0 million for a special dividend paid in January.
- Total assets were $23.05 billion and shareholders’ equity was $6.45 billion at March 31. Debt was $947.2 million; debt was 12.8% of total capitalization and 14.7% of equity. Book value per share was $21.59, up from $20.75 at year-end 2020.
- Invested assets totaled $15.35 billion. Fixed maturities were 97.1% investment grade. The fixed-maturity portfolio had $357.4 million of net unrealized gains at quarter-end, down from $599.1 million at year-end; equity securities had $1.15 billion of net unrealized gains.
Changes versus the prior comparable period
- Title premium and fee revenue increased 40.1%, supported by a strong real estate market, low interest rates, and purchase and refinance activity. General Insurance earned premiums were up 0.7%; RFIG premiums fell 26.8% as its insured risk in force continued to run off.
- General Insurance’s combined ratio improved to 91.6% from 95.6%; Title’s improved to 90.3% from 95.1%. Favorable prior-period reserve development contributed to reported claim-ratio improvement in both segments.
- Q1 2021’s positive equity-market valuation contrasts with the sharp equity-market losses recorded in Q1 2020. Accordingly, GAAP net income comparisons are less indicative of underlying insurance operating trends than results excluding investment gains and losses.
Outlook, commentary, and risks
- Management said General Insurance premiums could continue to grow as economic activity recovers, while Title results could remain strong if low rates and favorable real estate conditions persist. These are conditional expectations, not formal company-wide earnings guidance.
- Management identified a General Insurance target combined ratio of 90%–95%, with average claim ratios in the high-60% to low-70% range and expense ratios of 25% or below, assuming the current coverage mix.
- RFIG claims remain sensitive to employment recovery, mortgage delinquencies, federal loan-forbearance programs, and other government actions. Delinquencies had improved from their 2020 peak but remained above pre-pandemic levels.
- Key risks include uncertainty in long-tail insurance claim reserves and reinsurance recoverability; interest-rate and equity-market volatility; COVID-19 effects on economic activity, claims, and real estate; competition, inflation, and changing claim frequency or severity; and cybersecurity risk. The company reported no material non-claim litigation exposures and no material changes to the risk factors in its 2020 Form 10-K.
- Management considered liquidity sufficient for expected obligations. The nearest debt maturity was approximately $400 million of senior notes due October 2024. Up to $699.3 million of subsidiary dividends could be received in 2021 without prior regulatory approval, based on year-end statutory balances; extraordinary RFIG dividends require regulatory approval.
Important facts for investors to verify
- How much of future reported earnings comes from insurance operations versus volatile equity-security fair-value changes.
- Whether Title’s unusually strong premium and fee growth persists as interest rates, refinancing activity, and real estate conditions change.
- Whether General Insurance reserve development remains favorable and whether claim trends, particularly in commercial auto and workers’ compensation, remain within management’s long-term targets.
- How RFIG delinquencies, forbearance outcomes, claim severity, and regulatory approvals affect run-off results and potential capital distributions.
- Whether investment income and liquidity remain adequate as yields, portfolio valuations, and dividend outflows change; note that Q1 financing outflow included the special dividend.