Hello. My name is Chris and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Old Republic International Second Quarter 2023 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there'll be a question-and-answer session. Thank you. Joe Calabrese with the Financial Relations Board, you may begin.

Thank you. Good afternoon, everyone. And thank you for joining us for the Old Republic conference call to discuss second quarter 2023 results. This morning, we distributed a copy of the press release and posted a separate financial supplement, which we assume you have seen and/or otherwise have access to during the call. Both of the documents are available at Old Republic's website, which is www.oldrepublic.com. Please be advised that this call may involve forward-looking statements as discussed in the press release and financial supplement dated July 27, 2023. Risks associated with these statements can be found in the company's latest SEC filings. This afternoon's conference call will be led by Craig Smiddy, President and CEO of Old Republic International Corporation, and several other senior executive members as planned for this meeting. At this time, I'd like to turn the call over to Craig Smiddy. Please go ahead, sir.

All right, Joe. Thank you. Good afternoon, and welcome again everyone to Old Republic's second quarter earnings call. With me today is Frank Sodaro, our CFO of ORI, and Carolyn Monroe, our President and CEO of Title Insurance. Well, during the second quarter, General Insurance produced strong underwriting results, which drove its 34% increase in pretax operating income. And despite continued challenges with mortgage interest rates affecting the top line, our Title Insurance pretax operating income improved over the first quarter of the year. Our focus on specialization and diversification across Title and P&C Insurance paid off in the second quarter, producing $227 million in consolidated pretax operating income. And on a year-to-date basis, General Insurance has produced $378 million of pretax operating income while Title Insurance produced $52 million, alongside a consolidated combined ratio of 92.6. Our conservative reserving practices that we've spoken about are once again clearly visible with favorable reserve development reported in all three of our segments, led by General Insurance. With our strong underwriting income and investment income results, we maintained our strong balance sheet, while at the same time continuing to return capital to shareholders during the quarter and through dividends and share repurchases. We're also continuing to invest for the long run including the April announcement of our newest underwriting business, Old Republic Lawyer Specialty Insurance. So, I will now turn the discussion over to Frank, who will then turn things back to me to cover General Insurance. We'll follow that with Carolyn, who will discuss Title Insurance and then we'll open up the conversation for Q&A. So with that, Frank, I will turn it to you.

Thank you, Craig. And good afternoon, everyone. This morning, we reported net operating income of $180 million for the quarter compared to $210 million last year. On a per share basis, comparable year-over-year results were $0.62 versus $0.69. For the first half of the year, net operating profit was $359 million compared to $402 million last year. The considerable headwinds experienced by the Title Group were largely offset by strong operating results of the General Insurance group. Net investment income increased by about 30% for both the quarter and year-to-date, driven primarily by higher yields on the fixed income and short-term investment portfolios. To put in perspective, our average reinvestment rate on corporate bonds during 2023 was just over 5.1%, while the book yield on similar bonds being disposed of was just under 3%. The investment portfolio has held steady at approximately 80% in highly rated bonds and short-term investments, with the remaining 20% allocated to large-cap dividend-paying stocks. The quality of the bond portfolio remains high with 99% in investment-grade securities, with an average maturity of 4.2 years and an average overall book yield of 3.5% compared to 2.7% at the end of the second quarter last year. The fixed income portfolio valuation decreased by approximately $125 million during the quarter, while the stock portfolio valuation was relatively flat, ending the period in an unrealized gain position of over $1.2 billion. Turning to loss reserves, once again, all three operating segments recognized favorable loss reserve development for all periods presented. The consolidated loss ratio benefited by 4.6 percentage points for the quarter compared to 1.9 points for the same period a year ago. Year-to-date, the consolidated loss ratio benefited by 4.5 percentage points compared to 2.1 percentage points last year. The mortgage insurance group paid a $35 million dividend to the parent holding company in the quarter. We plan to return $110 million for the full year, subject to regulatory approval. Shareholders' equity ended the quarter at over $6.1 billion, resulting in a book value per share of $21.78. When adding back dividends, book value increased 5.7% from the prior year-end, driven by our strong operating earnings. In the quarter, we paid $70 million in dividends and repurchased nearly $220 million worth of our shares for a total of just under $290 million returned to shareholders. Since we ended the quarter, we repurchased another $83 million worth of shares, leaving us with about $180 million remaining in our current repurchase program. Now, I'll turn the call back to Craig for a discussion of General Insurance.

Okay, Frank. Thanks. So, in the second quarter, General Insurance net written premiums were up 8% and pretax operating income increased to $184 million. The combined ratio was at 90.2% compared to 92.5% in the second quarter of 2022. So, we continue to see our underwriting excellence efforts pay off, and we thank all of our associates for remaining keenly focused on profitable growth. The loss ratio for the quarter was 60.9%, including six points of favorable reserve development, and the expense ratio was higher at 29.3%, but this is in line with our line of coverage mix that over the last few years has trended towards lower loss ratio and higher commission ratio line. Both strong renewal retention ratios and new business growth have helped drive that 8% increase in net premiums written, and we continue to achieve rate increases across our portfolio, with the exception of Directors and Officers and workers' compensation. Turning more specifically to a few of our larger lines of coverage, starting with commercial auto, net premiums grew at a 13% clip, while the loss ratio came in at 67.5% compared to 66.6% in the second quarter of 2022 with favorable development in both of those periods. Severity continues in the high single-digit range, and rate increases are commensurate with that trend. This implies that we continue to cover our loss cost trend in commercial auto. Moving to workers' compensation, net premiums written grew by 8%, while the loss ratio came in at a low 37.9% compared to 52.3% in the second quarter of 2022. Here too, there's considerable favorable reserve development in both of those periods. Frequency continues to trend down for comparable periods, while severity trend is relatively stable. We believe our rate levels remain adequate for this line of coverage. We expect solid growth in profitability in General Insurance to continue throughout the rest of this year, which reflects the success of our specialty growth focus and our operational excellence initiatives. I will now turn the discussion over to Carolyn to report on Title Insurance. Carolyn?

Thank you, Craig. And good afternoon. The Title Group reported premium and fee revenue for the quarter of $650 million, down 37% from the second quarter of 2022. Agency premiums were down 38%, and direct premiums were down 32%. Our pretax operating income of $35 million compared to a $110 million in the second quarter of 2022. Our combined ratio was 96.9% compared to 90.4% in the second quarter of 2022. Our 2023 results compared to 2022 reflect the economic headwinds continuing to affect the volume of transactions in our market. We continue working to manage costs in response to market revenue levels while keeping a focus on longer-term strategic initiatives. We have improved our combined ratio by 2.4 points from the first quarter of this year, which helped drive increased profitability. This overall improvement during the second quarter compared to this year's first quarter is a positive trend to build on. Market conditions also adversely impacted our commercial business. In the second quarter, commercial premiums were down 37% over the second quarter of 2022 and represented 22% of our premiums in both 2023 and 2022. Year-to-date commercial premiums are down 31% over last year. While being mindful of market conditions, we continue to demonstrate our commitment to this segment with tools and resources to take advantage of the opportunities available. Over the last year, we have expanded and transformed our footprint nationwide and have been able to grow our market share in this segment. We continue to provide industry-leading value-added services that enable our agents, the cornerstone of our strategic focus, to concentrate on their core business and provide opportunities for efficiencies in their operations. While the first half of 2023 reflects the ongoing economic challenges in the real estate industry, we are focused on streamlining operational efficiencies and developing innovative products and services to prepare for both the short-term and long-term market conditions. Thank you. And with that, I'll turn it back to Craig.

All right, Carolyn. Thank you. So, as a diversified specialty insurer, we remain pleased with our continued profitable growth in General Insurance, which is helping to mitigate the lower revenue and profit levels in Title Insurance. While higher mortgage interest rates haven't helped our Title Insurance business, the higher interest rates continue to produce significant growth in our investment income, as Frank pointed out. We also remain pleased with our recent and long-term track record of capital stewardship and book value growth per share, including the $492 million returned to shareholders in the first half of this year through both dividends and share repurchases. For the remainder of 2023, we remain optimistic for continued profitable growth in General Insurance, while we remain of the view that Title Insurance will continue to face headwinds. As we noted and discussed in the last few quarters, this is Old Republic's 100-year anniversary, which we're celebrating under the banner of 100 Years of Excellence. As part of this ongoing celebration, we will be ringing the opening bell on the New York Stock Exchange next month on August 22nd. So, that concludes our prepared remarks, and we'll now open up the discussion to Q&A, and I'll try to answer your questions, or I'll ask Frank or Carolyn to respond.

Our first question is from Greg Peters with Raymond James. Your line is open.

Well, good afternoon, everyone. And 100 years, it's a pretty striking achievement for the company. So, it's certainly something for the record books. Hey, in looking over the statistics in the financial supplement, I noticed that the paid loss ratio for General Insurance has ticked up noticeably on a six-month basis for 2023 versus 2022. And I'm curious if you could provide some commentary about what's going on inside that?

Greg, this is Craig. Sure. This ratio is something that we look at over the long term. If you look at where we started back in 2018, you can see where, in 2020 and 2021 and even into 2022, there were probably some effects of the COVID situation and how that may have affected settlements in courthouses and the like. As we move into 2023, I don't draw any sort of conclusion. There is a little bit of a backlog there perhaps, but it's certainly in line with our long-term. And then, as we mentioned when we talked about our expense ratio, we also have shorter tail lines of business in our portfolio today, and those tend to pay out a little bit quicker, which is why they're short tail. Of course, there is an inflationary environment as well that affects payouts. So, pulling all those things together, there isn't anything that I glean out of the 59.9% you're seeing in the second quarter of 2023 compared to that longer-term trend.

Fair enough. You just stuck out, so I felt like I'd ask the question. The other question on General Insurance would be just again focused on the six-month results. The loss ratio - and I know you - by the way, I know you mentioned - talked a little bit about this in your comments, but the loss ratio for commercial auto, it's trended up. I guess, in the context of what I think is going on inside with your rate actions, I'm kind of surprised it's trending up. I would have figured it just stabilized, but maybe I'm missing something or this is just a normal pattern. I recognize it's still a lot better than it was a couple of years ago, but any comments there would be helpful?

Sure, Greg. I welcome that question. So, as I mentioned in my prepared remarks, both of those periods include favorable reserve development. What you're seeing here is not an indication of the current accident year loss ratio; rather, it reflects a little higher level of favorable development in 2022. While 2023 still had favorable development, perhaps just not to the same degree. Thus, this is not reflective of the rate increases that we're achieving and the trends that we think we are seeing are again producing a profitable accident year loss ratio. The noise that you're seeing between these two periods is reflective of favorable prior year development.

Fair enough. My last question, I always like to ask a question on the Title business too. And Carolyn, I was listening to your comments about the weakness in the Title - the commercial business. I guess, trying to understand when we see about the downside risk in valuation marks in commercial real estate, I wonder how you think that might ripple through Old Republic in terms of loss ratios, or if there is really little impact that you anticipate as a result of the new marks that are coming out of some areas of the commercial real estate portfolios?

Carolyn, I think you're in a perfect position to respond to Greg's question on that.

Okay. I don't really think that the valuations will have much impact on our losses, reserves, or loss ratios. They're highly leveraged properties. You have to remember that when commercial is done, there are so many attorneys involved and people looking at the properties, looking at the deals that I don't think just because the properties get devalued that it will affect our loss ratios.

Fair enough. Well, thank you for the answers. I'll let others ask questions.

The next question is from Paul Newsome with Piper Sandler. Your line is open.

Good afternoon. Thanks for the call. The shift towards these businesses with a lower loss ratio and higher expense ratio, is that effect finished, or should we expect new prospectively as well?

I missed the very last part of your question, Paul. I'm sorry, it didn't come through.

In the General Insurance business, you're seeing a mix change that's higher expense ratio and lower loss ratio.

Right. It's a great question. And Greg was just pointing to some things in our financial supplement. What’s driving this is not just the new business being added into our portfolio that is shorter tail business that tends to have a higher commission ratio, but we also have the impact of workers' comp. If you examine the financial supplement, you will see that workers' compensation has been decreasing significantly as a portion of our portfolio. Therefore, you can see that the trends of both of these influences are what has driven a good portion of that expense ratio up. While at the same time, our accident year loss ratios have trended down from 72.2% back in 2018 to 66.9% at the end of the second quarter of 2023. This gives us confidence in our strategy going forward. We expect to continue placing business into our portfolio from some of the new underwriting ventures we've undertaken, as they tend to have a higher commission ratios. Therefore, balancing our portfolio mix.

That was great. Lots of good details, no doubt. I want to move on to sort of the rate versus inflation conversation that we have with just about every company. It sounds like in your major businesses, like commercial auto and workers' comp, you are raising rates about what you think claims inflation is, but you didn't - I don't think you commented on the rest of the businesses. Overall, do you think you're just sort of covering current levels of inflation or do you think you're still making progress towards expanding the underlying profit margins?

This one is a bit tougher because it varies by line of coverage, and I will comment on a few. Workers' compensation, we’re giving up a little bit of rate there, but with the increased payrolls, our revenue from increased payrolls should support profitability. For auto, again, we feel very good about our accident year loss ratio. There are multiple years of compounded rate increases built into our portfolio. Our recent trends show that we're favorable as we continue to raise rates to meet our claims costs. Similarly, for specialty coverage lines such as aviation, we’ve experienced substantially increased rates that are positively affecting overall profitability. As for Directors and Officers, we have seen a softening market; hence our rates are more in line with the decreasing frequency of security class-action lawsuits. Overall, each line of coverage presents unique challenges and opportunities.

Great. Absolutely great. Thank you. Appreciate the help.

Thank you. We appreciate your support.

The next question is from Matt Carletti with JMP. Your line is open.

Hi, good afternoon.

Good afternoon, Matt.

I've got a few questions. Maybe stick with General Insurance to start. The past two, three quarters have definitely seen a higher level of favorable development than some of the quarters before that. You pointed to workers' comp and commercial auto as the drivers. Can you give any color around, are there particular accident years that the majority has been coming from or has it been pretty well spread over time?

Hi, Matt. It's really spread out. The analysis we look at goes back 10 years and almost every year has favorable development coming from it on an all-lines basis. I'd say about two-thirds of the development is coming from workers' compensation, with another third coming from commercial auto, but it is really widespread.

Okay, very helpful. And then maybe sticking with numbers, I noticed the kind of interest and other cost lines stepped up a few million this quarter. Is there something one-time in there or is that something more trendable?

I'll continue with this one also. There is a one-time event in there, a little more than half of that increase that we would not expect to happen again, but the rest of it is just slightly elevated. There's nothing alarming there, though, just a relatively small number.

Okay. All right, perfect. And then maybe last question if I can on Title. It sounds like, this quarter, the kind of headwinds in commercial, down 37%, were pretty commensurate with what you're seeing in residential. Has that been the case in prior quarters? I can't recall if you gave the numbers or not, but as we think about maybe Q1, Q4, has the commercial headwinds caught up to the residential market, or have they been commensurate for the past few quarters all along?

Carolyn, I'm happy to start. I think there is some catch-up here. My recollection of our prior quarters was that commercial was still coming in strong. This quarter, we saw it catch up, to use your words, is my initial reaction. But, Carolyn, again here too, you're closer to the action. So I'll turn it to you.

You're right, Craig. This is the first quarter that it really caught up to residential. But one thing you have to remember with us is that, because so much of our revenue comes from our agents, we also have that lag of agency reporting. So that's why you see a lot of it this quarter as well.

That makes sense. Fantastic. Thank you very much for the color. I really appreciate it.

Thank you.

Thank you.

The next question is from John Heagney with Dowling & Partners. Your line is open.

Good afternoon. I think most of my questions were answered. I just have maybe a capital question, particularly in the run-off. If I look at the contingency reserve, the statutory contingency reserve as of Q1 was roughly $110 million, give or take. You upstreamed $35 million of capital out of that entity. I'm assuming then a lot of that, if not all, was another regulatory release of the contingency reserve. So, that ballpark is $75 million or so left. How should I think about or how should we think about that coming down from this point forward? Is $20 million, $25 million a quarter over the next year or so the run rate we should assume?

Hi John. This is Frank. For this year, I think that's a good estimate about $25 million a quarter is the plan, and it is subject to regulatory approval. So, you're spot on we can actually do it; we have to get approval and we feel comfortable with that for the rest of the year.

So then essentially?

I want to follow up on that, but the timeline you're giving here feels about right to me.

Yes, I agree with Frank; the amount of dividend that we would expect next year will be less than this year. But I wouldn't say it would be zero. Following the trend, you can track the dividends that we have been able to return to the parent company over the last year or two.

So maybe more broadly then, because that all makes sense to me. You've been able to release some of the excess capital there and front-load some of the dividends. How should we think more broadly about capital management going forward? You've returned quite a bit. The mortgage has helped. The Title results being a capital-light business has helped. You've been able to move capital up and out there. The market is shifting. The growth is more P&C side, maybe heavier lines of business from a capital perspective. You take all that together, how are you thinking about your capital return over the next '24, '25 and maybe beyond?

Capital management and, more specifically, return of capital to shareholders, is a matter that we review with the Board every quarter. The biggest generator of any excess capital has been really the retained earnings coming from the General Insurance group. As you observe the trends in those combined ratios and the income that the General Insurance group continues to contribute, it suggests that we will continue to build capital and need to review capital every quarter. If we have excess capital, we discuss it with the Board and determine the best way to return that capital to shareholders if we are not putting it to work in new businesses. We continue to explore new businesses that would require capital investment.

Great. Appreciate the answers. Thank you.

Thank you, John. Appreciate your participation.

The next question is from Ryan Winrick with Guggenheim. Your line is open.

Hello, kind of echoing Greg's comments. Hello, congratulations on the 100-year anniversary and the ringing of the bell next month. Similar to John's question, you have three of the past four Augusts declared a special dividend with the off year being declared into December. When evaluating your excess capital level, from our end, we're trying to determine the likelihood of another special dividend. Do you target certain thresholds when determining that amount that you will not go under, for example? Any commentary would be helpful.

The timing of those dividends, I wouldn't read anything into that as I mentioned in the earlier response. We review capital levels with our Board every quarter. There is not a particular quarter where we focus solely on returning capital. We ask ourselves that question every quarter, and the introduction of share repurchases as an additional tool in our capital management strategy means that any capital we return through share repurchases is not available to be returned as a special dividend. We will continue to, with the Board, discuss returning capital every quarter, and we know that we have tools like special dividends and additional share buyback authorization.

Okay. Appreciate your input.

We have no further questions at this time. I'll turn it back to management for any closing remarks.

Thank you all very much for participating, and we hope that you enjoy your summer. We look forward to talking to you all again next quarter and are excited to report our ongoing progress throughout the year. Thank you very much, and have a good day.

This concludes today's conference call. You may now disconnect. Thank you.