Good afternoon. My name is Audra and I will be your conference operator today. I would like to welcome everyone to the Old Republic International Third Quarter 2023 Earnings Conference Call. Today's conference is being recorded. All lines have been muted to minimize background noise. After the speakers' remarks, there will be a question-and-answer session. I would now like to turn the conference over to Joe Calabrese with Financial Relations Board. Please go ahead.

Thank you. Good afternoon, everyone. Thank you for joining us for the Old Republic conference call for third 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 October 26, 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 would like to turn the call over to Craig. Please go ahead, sir.

Okay. Thank you, Joe. Well, good afternoon everyone and welcome again to Old Republic's third 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 third quarter, General Insurance continued to produce strong underwriting results which drove a 28.6% increase in pre-tax operating income for the quarter and a 32.3% increase year-to-date. The decline we saw in Title Insurance pre-tax operating income continues to reflect what we're seeing from the effects of mortgage interest rates. However, our focus on specialization and diversification across Title and P&C segments allowed us to produce $251 million of consolidated pre-tax operating income in the third quarter compared to $257 million in the third quarter of 2022 alongside of a consolidated combined ratio of 91.9% for the quarter and 92.4% year-to-date. So our conservative reserving practices continue to produce favorable reserve development and we saw that in all three segments led by strong favorable reserve development in general insurance. Our balance sheet remains solid even as we continue to return capital to shareholders through both dividends and share repurchases and as we continue to invest in the long-term including our September announcement of yet another new underwriting venture Old Republic Accident and Health. So I'll now turn the discussion over to Frank and then Frank will turn things back to me to go into some details on general insurance followed by Carolyn who will discuss some details on Title insurance. And then we'll open up as we always do for conversation and Q&A. So Frank, I hand it to you.

Thank you, Craig, and good afternoon, everyone. This morning, we reported net operating income of $200 million for the third quarter compared to $206 million last year. On a per share basis, comparable year-over-year results were $0.72, up from $0.68. Net investment income increased over 26% for the quarter, driven primarily by higher yields on the fixed income and short-term investment portfolios. Our average reinvestment rate and corporate bonds during the year was 5.3%, while the comparable book yield on bonds disposed of was just under 2.8%. The bond and short-term investment portfolios increased to 83% of the total, with the remaining 17% allocated to large cap dividend paying stocks. We continue to evaluate this allocation in light of the current interest rate environment. The quality of the bond portfolio remains high with 99% in investment-grade securities with an average maturity of 4.3 years and an overall book yield of nearly 3.8% compared to 3.1% at the end of the third quarter last year. The valuation of our fixed income securities decreased by approximately $180 million during the quarter, driven by higher interest rates, while the value of the stock portfolio declined nearly $106 million but ended the period in an unrealized gain position of just under $1.1 billion. Now moving to the other side of the balance sheet. Our strong reserve position once again led to all three operating segments recognizing favorable loss reserve development for all periods presented. The consolidated loss ratio benefited by 4.5 percentage points for the quarter compared to 3.4 points for the same period a year ago. The Mortgage Insurance group paid a $25 million dividend at the parent holding company in the quarter, bringing the year-to-date total to $85 million, with plans to return another $25 million in the fourth quarter subject to regulatory approval. We ended the quarter with book value per share of $21.37 when adding back dividends, book value increased just under 5% from the prior year-end driven by our strong operating earnings, partially offset by unrealized investment losses. In the quarter, we paid $68 million in dividends and repurchased nearly $125 million worth of our shares for a total of just over $190 million returned to shareholders. Since the end of the quarter, we repurchased another $52 million worth of shares, leaving us with about $90 million remaining in our current repurchase program.

Okay. Thanks, Frank. In the third quarter, General Insurance net written premiums were up a heavy 12% and pre-tax operating income increased to $216 million, up from $168 million in the third quarter of 2022. Our combined ratio was 89% compared to 90% in the third quarter of 2022. So thanks to all the hard work of our associates, along with our underwriting excellence efforts, we continue to produce overall very profitable results. The loss ratio for the quarter in General Insurance was 60.4%, which included 6 points of favorable reserve development and the expense ratio was higher at 28.6%, but that's in line with our line of coverage mix trending toward lower loss ratio, higher commission ratio lines over the last few years. We had strong renewal retention ratios and new business growth including new business produced through our new underwriting ventures that helped drive that 12% increase in net premiums written. And we're continuing to achieve rate increases across the portfolio with the exception of D&O in our financial lines and workers' compensation. So, turning specifically to our two largest lines of coverage. First, commercial auto, net premiums written grew at a 19% clip while the loss ratio came in at 66.3% compared to 64.8% in the third quarter of 2022. And in both of those periods we had favorable loss development although there was somewhat less favorable development in the third quarter of this year compared to last year. Severity trends holding around 10% with frequency trend relatively stable. And our rate increases are commensurate with these trends we're observing which implies that we continue to cover our loss cost trend on commercial auto. Workers' compensation net premiums written declined 6% and while the loss ratio came in at 33.2% compared to 35.8% in the third quarter of 2022. And here too, both of these periods saw favorable reserve development. Frequency for workers' compensation continues to trend down while severity trend is relatively stable. So we think our rate levels remain adequate even with rate decreases in the low to mid-single digits. We, overall, expect solid growth and profitability and General Insurance to continue for the rest of the year and into 2024, reflecting again our specialty strategy and our excellence initiatives.

Thank you, Craig. For the third quarter, the Title group reported premium and fee revenue of $684 million. This represents an improvement of around $35 million from last quarter but it was down 29% from the third quarter of 2022. Our agency premiums were down 31% and direct premium and fees were down 22% from last year's third quarter. And our pre-tax operating income of $37 million compared to $73 million in the third quarter of 2022. We had a combined ratio of 96.7%, which compared to 93.7% in the third quarter of 2022. As the challenging market continues our approach is cost management with a long-term view of focused on our strategic initiatives. This approach helped to maintain an incremental improvement in our pre-tax operating income this quarter as compared to second quarter 2023 results. Since the end of 2022 interest rates have been the headline story in our market. And as interest rates continue to rise housing affordability dropped to its lowest level in more than 30 years. This issue impacts the availability of existing homes for sale pushing buyers towards new homes. Low levels of inventory will continue to affect the volume of transactions in our markets. The commercial market remains an important focus for us. Our transformed nationwide footprint has allowed us to grow market share in this segment. Our commercial premiums in the third quarter increased from last quarter but were down 32% over the third quarter of 2022. Commercial premiums represented 22% of our earned premiums this quarter compared to 21% in the third quarter of 2022. The cornerstone of our business is our independent agents. 88% of our 2023 premiums came from independent agents. Over 60% of US title insurance premiums are written by independent agents. So, our strategy is to utilize bundling of technology solutions to optimize the business processes of our agents and internal productivity resulting in better customer and employee engagement. We believe these strategies will position us to take advantage of market opportunities in the future. And with that, I will turn it back to Craig.

Okay. Carolyn thank you. Well, we remain pleased with our profitable growth in General Insurance which is helping to mitigate the lower revenue and lower profit levels in Title Insurance. And we also remain pleased with our capital management efforts including the $684 million we've returned to shareholders through dividends and share repurchases in the first nine months of this year. For the remainder of 2023 and into 2024, we're optimistic for continued profitable growth within General Insurance as I commented on earlier. While we remain of the view that Title Insurance will continue to face mortgage interest rate and real estate market headwinds through 2024. So, that concludes our prepared remarks and we'll now open up the discussion to Q&A and either I'll take your questions or ask Frank or Carolyn to respond.

Thank you. We'll take our first question from Greg Peters at Raymond James.

Good afternoon. Can you guys hear me?

Hi Greg. We can hear you just fine.

Excellent. Congratulations on your quarter. I guess I had a couple of questions for you. First of all from a written premium standpoint it seems like things have accelerated a little bit in the third quarter relative to the rest of the year. Perhaps you can give us sort of a perspective on how the third quarter is really going to shape the cadence of what we should think about for next year? Specifically, as we look at the strong top line results I guess general expectation is we'd expect growth to moderate into next year. But with pricing and exposure growth maybe an expectation of elevated growth going through 2024 might be reasonable. Any comments on that?

Certainly, Greg. I'm glad to share my thoughts. The notable increase in net written premium for commercial auto reflects our competitive pricing strategy, which has proven effective as we adapted to severity trends. We've benefited from an average rate hike of around 10% in commercial auto, along with an influx of new business. We're optimistic about our position in this segment, and we've experienced positive developments within that line of business. Thus, we're well-positioned to remain competitive in commercial auto heading into 2024. Additionally, I mentioned that four out of six recent underwriting ventures are now generating premiums, and I expect substantial growth from these efforts as we approach 2024 and 2025, based on our current projections. Conversely, in workers' compensation, it appears that rate increases will not materialize for the remainder of the year, and we're likely to see ongoing rate reductions. While we strive to maintain our rates, declining frequency trends are leading the market to lower rates, which impacts our net premiums written. I'm hopeful that by 2024, we'll see a stabilization rather than further decreases. Overall, I'm fairly optimistic about our revenue as we enter 2024, and our portfolio is in a solid position for profitability. We're not making extensive underwriting cuts to our portfolio; rather, we are positioned for growth.

Thanks for that answer. Just as a follow-up on the workers' comp. I mean the loss ratios that you're reporting are clearly reflecting the prior year development. Can you give us a sense of where you're pegging the current accident or loss pick with inside workers' comp?

Yeah. Well, we're holding it fairly consistent with where we had it in the past. As a matter of fact, it might even be about one point higher. So the current accident year on work comp is around 64 and that compares to around 63 last year. So, we're being conservative there. We're not reducing the loss pick and we would expect that as we get into our planning sessions and set our picks for '24 we'll take a close look at what's happening with severity and frequency again and take both of those things into consideration along with anticipated rate changes in '24 when we look to reset that lost bit.

Got it. Thanks for that answer. And then I just pivot real quickly to the Title business. I know, the expense ratio has popped up as revenues have come in. Do you think we're sort of nearing the peak in terms of where the expense ratio is? And I know you commented a little bit in your prepared remarks but is it expected that that's going to gradually come down over time?

I will begin and then pass it over to Carolyn for more details. We have consistently communicated in previous quarters that we expect 2023 to have a combined ratio around 97. We still think that is where the year will likely end. I'm mentioning the combined ratio because it has been our focus, and 95 points of that combined ratio is the expense ratio. As Carolyn noted in her remarks, we are managing expenses, and it's evident that the top line heavily influences those ratios. We are being cautious, but Carolyn, I'll let you address Greg's questions more specifically about the expected expense ratio for this year and next year.

Yes. I think that where we are is pretty consistent with where we think it will stay. We were able to although slightly, I mean, we did improve our combined ratio from the second quarter to the third quarter. And I just think that's just because of some of the things that we have been doing throughout the year. And I just expect it to stay right around this for at least the rest of this year on into 2024.

Got it. All right. Thank you for the detail.

Appreciate your questions, Greg. Thank you.

We'll go next to Paul Newsome at Piper Sandler. Mr. Newsome, your line is open, please go ahead.

Good afternoon. Thanks for the call. Hopefully you can hear it.

Hi, Paul. We can hear you just fine. Thank you.

I had some bad luck yesterday, so I'm glad to be here with you. I had a couple of questions about Title Insurance. I'm wondering if there has been any impact on the mix between Title Insurance sold through independent agents versus that sold through the direct channel. Also, has the downturn affected where customers are going? Does this change your positioning in the Title business as you observe these changes, if at all?

Carolyn, I'll just chime in real briefly and then turn it to you. But our observations on direct and independent are based of course on our portfolio. And just to give you a sense, our direct operations are mostly West Coast California. So the real estate market there has had more headwind than we've seen in other places in the country. So for us, we have a view of direct business that is mostly California-centric and then of course, the rest of our view is nationwide. But Carolyn, I'll turn it to you now to comment on what you think about any shifts in direct and agency and where things are.

Sure. We've tracked for years. We're able to look at numbers of how much business is written by independent agents compared to directly owned operations. And at least for the last 10 years, it has stayed in the low 60%. There just hasn't been much shift. And I don't see it changing because really direct and agency is also like a lot of market driven. On the East Coast, you see mainly independent agents. And in some of the bigger states, it's about a 50-50 split. So as long as we are able to keep our independent agents in business, I don't see that changing much.

That makes sense. Does it matter if you've noticed a trend in the housing sector towards new home sales rather than existing homes? Does that impact you as a Title insurer from a marketing viewpoint?

Go ahead, Carolyn.

No, I mean it's just that for an agent they market to someone different. They're targeting a builder instead of a real estate client. It also depends on the market, whether an underwriter or a direct operation has a relationship with a builder. Our business is always driven by relationships. So it's really about who has the relationship with the builder and who has the relationship with the realtor.

And then a question about reserves perhaps because I always want to put Frank in the hot seat. A lot of the companies are today and recently are reporting issues with accident years sort of in the casualty reserves for accidents or sort of 2016 to 2019. Obviously, you folks have had a great track record overall. I'm just curious if in some of your books you're seeing some of that, or is that some of the differentiation amongst your book versus others that they're seeing these problems during casualty lines in those years.

Yeah. And the years where you say others are experiencing problems with unfavorable development are in accident years did you say 2016 to 2019 Paul?

Yeah. They're sort of all the pre-pandemic years. Seems to be where the source of some problems are for a lot of companies.

We are quite different in the commercial auto segment. We have been successful in recognizing trends early and responding swiftly, which began well before the pandemic several years ago. We have managed to achieve the necessary rate increases to counteract those trends. Unlike some competitors who are facing negative developments in commercial auto, we are seeing positive developments. However, the situation is different for general liability, where we are encountering some negative development. As we did with auto, we are addressing this issue, and part of the growth in general liability premiums is due to rate increases that are aimed at compensating for social inflation trends impacting both auto and general liability.

I always appreciate the help. Thanks a lot.

Thank you, Paul.

Hi. Thanks for taking my call. My question has to do with interest rates and competition in really all lines of insurance that involve flows. So I'm just generally you can obviously get much higher yield on insurance flow these days. Do you guys expect various lines to become more competitive over the next few years in terms of pricing? And relatedly, do you guys still think that 90% to 95% combined ratio in the General Insurance business is a good sort of range because you guys have been at 90 for a few years now, or do you think you guys could start to push into the 80s? Thank you.

Sure, I would be happy to address both of those questions, and I think they are related. In my 37 years in the industry, I have seen both hard and soft markets, some influenced by underwriting float and investment income, which sometimes receive more attention than underwriting income. I understand your concern. Where we are in the current cycle, there is a greater worry in the market regarding social inflation and general inflation, along with the necessity of continuing rate increases that align with those trends. We are not changing our target combined ratios because of increased investment income. We believe it is essential to maintain target combined ratios between 90% and 95%, depending on the type of business. We indicate this range because there are slight differences based on whether it’s shorter or longer tail business, allowing for slightly higher combined ratios in longer tail cases. In general, when it comes to competitiveness in the market, there are more significant concerns that outweigh any potential benefits of increased investment income. While new entrants might disrupt and underprice business, the property and casualty market remains disciplined and focused on achieving appropriate rates relative to inflation trends. I believe the second part of your question ties into this, as it relates to how we set our target combined ratios. I can confirm that our target combined ratios will remain unchanged as we plan for 2024, still aiming for the low 90s to 95. As for moving into the 80s, that seems challenging, given the inevitable market pressures related to increased investment income, which typically leads to higher combined ratios. Furthermore, a significant portion of our success stems from favorable development. As mentioned in previous earnings calls, the current level of favorable development we are seeing is not sustainable long term; a 6-point increase is exceptionally strong, and we prefer to see favorable development ideally around 2%. However, the current overall calendar year combined ratio reflects some robust favorable development that won't last. Thus, we will continue to focus on the combined ratios we are currently targeting for accident years.

Okay. Great. Thanks. And one other question. Do you guys have an internal forecast for when you think autonomous vehicles might start to impact the commercial auto insurance market, or do you guys think it's so far off that it's not worth worrying about right now?

We certainly monitor the situation; however, we don't have an internal forecast. We believe it will be a long time before the public becomes comfortable with autonomous driving. For us, it's important to focus on long-haul trucking and commercial vehicles, as this constitutes the majority of our commercial auto exposure. We do not deal with personal lines; our focus is purely on commercial. Therefore, when considering commercial, the notion of an 80,000-pound truck operating on a highway without a driver seems quite distant before the public can accept the significant risks associated. Additionally, the other commercial auto business that we engage in involves transporting workers and goods, and those vehicles will always have drivers since they are the individuals we insure. Thus, the question of autonomy may not be as pertinent to us as it would be for a personal auto insurer, as we believe it's still far off for the types of risks we underwrite.

Okay. Thanks.

And that does conclude the question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

Okay. Well, we again I appreciate everyone that has joined the call and listened in and those that have asked questions, we are appreciative of that as well and I appreciate the support. And we feel good about the third quarter, and looking forward to reporting to you on our fourth quarter results. And until then thank you very much and have a good day.

And that does conclude today's conference call. Thank you for your participation. You may now disconnect.