Old Republic International Corp Q4 FY2024 Earnings Call

Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Old Republic International 4th Quarter 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star, then the number 1 on your telephone keypad. To withdraw your question, press star 1 again. I would now like to turn the conference over to Joe Calabrese with the Financial Relations Board. Please go ahead.

Thank you, Regina. Good afternoon, everyone. Thank you for joining us for the Old Republic Conference Call to discuss fourth quarter 2024 results. This morning, we distributed a copy of the press release and posted a separate financial supplement. Both of the documents are available on Old Republic's website at www.oldrepublic.com. Please be advised that this call may involve forward-looking statements as discussed in the press release and financial supplement dated January 23, 2025. Risks associated with these statements can be found in the company's latest SEC filings. Presenting on today's conference call would be Craig Smitty, President and CEO, Frank Sidoro, Chief Financial Officer, and Carolyn Monroe, President and CEO of All Republic's National Title Insurance Group. Management we'll make some opening remarks, and then we'll open the line for your questions. At this time, I'd like to turn the call over to Craig. Please go ahead, sir.

Okay. Thank you, Joe. Good afternoon, and welcome again to Old Republic's fourth quarter and year-end 2024 earnings call. So during the fourth quarter, we produced $285 million of consolidated pretext operating income up from 237 million in 2023 our consolidated combined and that compares three in the fourth quarter of last year as we noted in the release we've renamed our general insurance segment to specialty insurance we believe specialty more appropriately reflects our specialty P&C strategy with 17 underwriting subsidiaries focused on unique specialty niche markets. So in specialty insurance, we grew net premiums earned by 13% in the fourth quarter and produced $228 million of pre-tax operating income. That's up from $195 million last year. Insurance combined ratio was 91.8 in the quarter and that compares last year. Despite the continuation of higher mortgage interest rates and a tight real estate market, title insurance grew premiums and fees by 9% in the fourth quarter and produced $55 million of pre-tax operating income, up from $44 million. The title insurance combined ratio was 94.4 in the quarter, and that compares to 95.5 last year. Reserving practices continued to produce both favorable the insurance and title insurance and frank will remain strong even as we returned and share repurchases we declared a special dividend of two dollars per share in the fourth quarter which reduced our book value per share by that same two dollar while we continue to return excess capital to shareholders we also continue to manage for the long run investing in new specialty underwriting subsidiaries, technology, and talent. And on that front, you may have seen earlier this month, we announced our latest new underwriting Over to Frank, and then Frank will turn things back to me to cover specialty insurance, followed by Carolyn, who will discuss title insurance, and then we'll open it up for our usual Q&A and conversation. So with that, Frank, I hand it over to you.

Thank you, Craig. and good afternoon everyone. This morning we reported net operating income of $227 million for the quarter compared to $190 million last year. On a per share basis, comparable year-over-year results were $0.90 compared to $0.69 last year. Net investment income increased 10% and 16% in the quarter and year respectively, driven by higher yields on the bond portfolio. Our average reinvestment rate on corporate bonds during the year was 4.8%, while the comparable book yield on corporate bonds disposed of was 3.5%. The total bond portfolio book yield now stands at 4.5%, compared to 4% at the end of last year. During the quarter, the value of our total investment portfolio decreased by about $400 million. however we ended the full year up over a hundred million. Turning now the loss reserves, in the quarter the consolidated loss ratios benefited from favorable development by 2.9 percentage points compared to 4.7 last year. As expected the lower level in the quarter came primarily from specialty insurance and was consistent with the full year results. And I'll give some line of coverage details. Commercial auto and workers comp continued to have strong favorable development although lower than last year. Property also experienced strong favorable development and was higher than last year. The favorable development in these lines were partially offset by unfavorable development in general liability which was spread across multiple subsidiaries and accident years and in transactional risk which is included within financial indemnity. This recent experience aided our decision to exit transactional risk which contributed less than $20 million of premium in 2024. We ended the quarter with book value per share of $22.84 which inclusive of both the ordinary dividends and the $2 special dividend declared in the quarter equated to an increase of 11% for the year resulting primarily from our strong operating earnings. In the quarter we declared nearly 560 million of dividends and repurchased 174 million worth of our shares, bringing the total capital return this year to just over 1.7 billion. Since the end of the quarter we repurchased another 25 million worth of shares, leaving us with about 205 million remaining on our current repurchase program. And I'll turn the call back over to Craig for discussion of specialty insurance.

Okay, thanks, Frank. Specialty insurance net written premiums were up 16% in the fourth quarter with strong renewal retention ratios, rate increases on most lines of coverage, new business growth, and an increasing premium production in our new specialty underwriting subsidiaries. Our E&S premiums grew by 21% in the quarter and 33% for the year, so we ended the year with $611 million of surplus lines direct written premium. I mentioned in my opening remarks in the fourth quarter, specialty insurance pre-tax operating income was $228 million, while full-year 2024 pre-tax operating income was $848 million, and the fourth quarter combined ratio was $91.8, while the full-year combined ratio was $92.2. The full-year combined ratio was two points higher than the full-year 2023 combined ratio, which reflects the anticipated lower level of favorable prior year loss reserve development somewhat offset by an improvement in the 2024 current year loss ratio so uh given these top line and bottom line results we continue to grow at a strong clip and at a very profitable level within specialty insurance details the loss ratio for the fourth quarter was 64.1 including 2.4 percentage points of favorable prior year loss reserve development and that compares to 65.1 last year that included 5.1 points of favorable development offset by an increase to the 2023 current year loss ratio in the fourth quarter of 23. The expense ratio was 27.7 in the fourth quarter, and that compares to 26.9 last year, while the full year expense ratio was 28.1, and that compares to 28.2 for the full year 2023. So, these results are right in line with expectations, and those ratios are holding steady for us. Now, turning to property catastrophic losses that impacted the industry as a result of the Los Angeles. First, of course, our thoughts remain with all of those in the disaster areas, which includes about 100 of our associates. You may recall we write less catastrophic. Currently, we estimate our million dollars. Details on compensation. Commercial auto net premiums written grew 15% in the fourth quarter, while the loss ratio came in at 77.9, and that compares to 78.3 last year. The full-year loss ratio was 72.4 compared to full-year 23 of 71.5. Rate increases for commercial auto were approximately 10%, and consistent with what we've said in the last several quarters and really several years, those rate increases are commensurate with the loss trends that we're observing. Workers' compensation net premiums written were about 1% higher in the fourth quarter, while the loss ratio came in at 35.5 compared to 42.6 last year. Obviously, a lot of favorable development both this year and last year. The full-year loss ratio was 48 compared to the full-year 2023 loss ratio of 41.4. Loss frequency for work comp continues to decline, same story that we've seen for many years now, while the loss severity trend remains very stable. So given the higher wage trend within payroll, which again, as a reminder, is our rating base, and given the declining loss frequency trend, the stable loss severity trend, our Our rate decreases of about 4% allow us to remain at an adequate level when it comes to workers' compensation. We expect solid growth and profitability in specialty insurance to continue into 25, which reflects the success of our specialty strategy and our operational excellence initiatives. We also expect continued growth and contributions from our new specialty underwriting subsidiaries. Over to Carolyn.

Thank you, Craig. The Title Insurance Group reported premium and fee revenue for the quarter of $702 million. This represents an increase of 9% from the fourth quarter of 2023. Premium fees produced in our direct operations represented 23% of revenue versus 21% in the fourth quarter of 2023. Directly produced premium fees were up 24% from the fourth quarter of last year, while agency produced premiums were up 5%. As shown in our recently enhanced financial supplement, new open title orders in our direct operations for up 26% during the fourth quarter of 2024 compared to the fourth quarter of last year nearly a third of the new residential orders during the quarter were refinance transactions continuing the trend that we saw last quarter the fourth quarter included some large commercial transactions from our direct operations pushing up our average revenue per commercial order total Local agency and direct commercial premiums increased moderately for the quarter and represented approximately 23% of net premiums earned in the fourth quarter of 2024 as compared to 21% in 2023. Our pre-tax operating income of $55 million was an increase of 26% over fourth quarter of last year, bringing our full-year pre-tax operating income to $144 million. We're pleased to report that our combined ratio for the quarter was 94.4% compared to 95.5% during the fourth quarter of 2023. This is an improvement of over one percentage point, driven by a combination of increased revenue and expense management. 2023 and 2024 were challenging years for the real estate market. During the year, we watched the market pretty much bounce along the bottom and prepared for things to turn. Our 2024 revenues improved slightly over 2023 as buyers became accustomed to higher prices. Slightly improving rates coupled with strong homeowner equity pushed up refinance activity, and newly built homes are starting to ease our inventory levels. We start 2025 mindful of where the market has been and encouraged by improvements in the broader economy and the overall direction of order counts of our direct operations. Our agency operations continue to assist agents with growing their market coverage. We are refocusing our technology efforts on integrated solutions that enable our agents to seamlessly connect to our customer portal. This will make it easier to do business with us regardless of which closing software is being used by our title agent. There will be more to come throughout the 2025 on these technology solutions. Thank you and with that I'll give it back to Craig. Okay Carolyn, thanks.

So profitable growth continued in specialty insurance in 2024 and we remain very optimistic for specialty insurance in 2025 and beyond. And in title insurance, we've remained profitable and our optimism is increasing as revenue has over the last few quarters. Overall, our strong 2024 operating performance drove solid earnings per share, solid operating return on equity, and solid book value growth, which enabled us 2024. So that concludes our prepared remarks. And we'll now open up the discussion to Q&A, where I'll answer your questions, or I'll ask Frank or Carolyn to help me out.

At this time, I'd like to remind everyone, in order to ask a question, simply press star, followed by the number one on your telephone keypad. Again, that is star one for any questions. We'll pause for just a moment to compile the Q&A roster. Our first question will come from the line of Gregory Peters with Raymond James. Please go ahead.

Well, good afternoon, everyone. Hi, Greg. So I guess for the first question, and I appreciate the commentary you provided on the general insurance business. As I was going through the supplement, I was particularly struck by the growth that you reported in general liability in the home and auto warranty and in the property business on a year-over-year basis for the full year. So maybe, and I know maybe some of this is tied in with some of the new business initiatives, but maybe you could, you know, dissect those three segments or sub-segments and tell us what are the drivers there for the growth.

Sure, Craig. Indeed, and as we note in the foot, and are producing meaningful premiums at this point, and that contributes to both property and general liability growth. And then on home and auto, the home warranty is down the sale of a new home, agreements and producing some fairly significant growth there.

Thanks. Thanks for that, caller. Just related to the specialty insurance segment, the biggest line of business for you by far and way is the commercial auto business. You talked about rate increases there. Maybe you could spend a minute and give us a perspective on what you see going on from a competitive landscape perspective.

Sure. You know, since things really in 28-some abuse and those things that are contributing, we have been very diligent at development compared to the industry, which has had unfavorable development. We've seen actually favorable development. And if you think about the fact that we jumped on it early, that we monitor it as closely as we do and get rate, we'll continue to be able to produce a profitable result there. So the industry, you know, it really varies, and they've reacted, a lot of them raising rates substantially, which has created some opportunity for us, given that we've been more steady over the course of the last five or six years. And when it comes to severity, it seems like from some of the commentary in 2018 and 2019, and we've stayed on top of it immediately, where we were getting ratings, even the high teens, there for a while and then we've just been getting the necessary in the 10% range to consistent with what we're seeing so it seems like and that others figure things out makes

sense that's good color I guess for the last question ordinarily Carolyn I have one for Carolyn but actually I'm going to change course and ask Frank a little bit about the investment portfolio. And, you know, I know, you know, with the yields having gone up in the last couple of years, I know there was a pivot a little bit away from the equity investment side, but it seems like that's kind of stabilized. So I, you know, from a big picture perspective, just, you know, where are we with new money yields versus where the portfolio yield is? Have you done anything with duration? And what's your updated view on the balance between fixed income and equities?

All right, Greg, I could dig into that a little bit. So I'll start with what your last question there. Where we're at now, which is about 84 and fixed, 16 and equities, we're pretty comfortable at that level. And we're poised to go either way up and down if we have to, depending on the the opportunities that are out there but we're comfortable where we're at you know as far as as new money we were putting for the year we were reinvesting at about 4.8 percent on corporate bonds and the portfolio yield right now is at 4.5 that that fixed income portfolio so there's there's some room to go up but there's you know that's definitely slowing slowing down as far as duration and quality credit quality and all that we're we have not made material changes in that in that arena so it's it's a pretty steady state I would say poised to move where there's opportunities

yeah Greg I would just add to that that although we look at duration and and we have some flexibility in in our investment portfolio we do try to matter our liabilities so that mission is is reflective of our anticipated payment on those liabilities so we follow that and that still leaves us some flexibility But as Frank said, generally, our duration is consistent with what we believe we need to do relative to our anticipated liabilities.

Makes sense.

Again, for any questions, simply press star, followed by the number one on your telephone keypad. Again, that is star one. We'll take our next question from the line of Paul Newsom with Piper Sandler. Please go ahead.

Good afternoon. I wanted to ask some capital management questions and maybe just sort of review and see if there's any changes in how you are thinking about your current capital position given the special dividends and dividends and the buybacks that you've done so far. And maybe you could talk a little bit about the trade-off of capital usages, particularly looking at dividend versus stock repurchasing, what you're thinking in that at the moment?

Sure, Paul. I'm happy to talk about that. So, you know, one of the nice things that shareholders continue to refill the coffers is retained earnings. So while we've made a decision in the fourth quarter with the board that we would issue the $2 return capital and get us to a level that is more appropriate capital level. And at the same time, we retained our ability to continue to repurchase shares. And as we said at the beginning, and when we look at repurchasing shares, we will look at where we're trading. And so we do repurchases depending on where we might be trading and we remain opportunistic in that regard. So that'll continue and again, review our capital position and the best, most efficient way to return capital to shareholders.

Is there a particular model that dominates how you consider what is excess capital or non-excess capital at the moment?

Yeah, I wouldn't say there's a particular model. We look at many different dimensions and measures when we look at capital and, of course, look at liquidity as well. And if we believe we have substantial liquidity and we have looking at various different leverage metrics and, of course, looking at our RBC ratios, looking at qualitative analysis that comes into play when we look at our capital position. But right now, even with the special dividend and the share reversations, all of our metrics would continue to be beyond that.

Thank you. Appreciate the help, as always.

Thank you, Paul.

I think we have no further questions at this time. I'll hand the call back to management for any concluding remarks.

Okay. Well, we here at Old Republic feel very good about how to deliver to all the initiatives that we have underway. And, again, we wish you all well in 2020 and look forward to seeing you next quarter. And we'll continue to report on our progress. So thank you all very much and have a great day.

Everyone, that will conclude today's call. Thank you all for joining. And you may now disconnect.