Operator
Good afternoon and welcome to Old Republic International's second quarter 2025 earnings conference call. All participants are in a listen-only mode. After the speaker's remarks, we'll conduct a question and answer session. To ask a question at that time, you'll need to press star followed by the number one on your telephone keypad. As a reminder, this conference call is being recorded. I would now like to turn the call over to Joe Calabrese at MWW. Thank you.
Please go ahead thank you good afternoon everyone and thank you for joining us for the all republic conference call to discuss second quarter 2025 results this morning we distributed a copy to the press release and posted a separate financial supplement both of the documents are available on all republic's website at www.allrepublic.com please be advised that this call may involve prologging statements as discussed in the press release dated July 24th, 2025. Assumptions, uncertainties, and risks exist that may cause results to differ materially from those set forth in these forward-looking statements. For more information on these assumptions, uncertainties, and risks, please refer to the forward-looking statements discussion in the press release and the company's other SEC filings and the risk factors discussed in the company's most recent Form 10-K and other recent SEC filings. We may also include references to net income, excluding net investment gains or net operating income, a non-GAAP financial measure, in our remarks or in the responses to questions. GAAP reconciliations are included in the press release.
Presenting on today's conference call will be Craig Smitty, President and CEO, Frank Sedara, Chief Financial Officer, and Callan Monroe, President and CEO of Old Republic's National Title Insurance Group. management will 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 all right joe thank you very much and uh good afternoon everyone thank you for joining our call and uh welcome again to our second quarter 2025 earnings uh discussion well our story of strong growth and strong profitability continued through the second quarter of this year. During the second quarter, we produced $267.5 million of consolidated pre-tax operating income, up from $253.8 million in the second quarter of 2024. Our consolidated combined ratio was 93.6 compared to 93.5 in the second quarter of last year. In specialty insurance, we grew net premiums earned by 14.6% in the second quarter and produced $253.7 million of pre-tax operating income. That was up from $202.5 million in the second quarter last year. The specialty insurance combined ratio was 90.7 in the quarter, and that compares to 92.4% in the second quarter of last year. Entitled, despite the continuation of higher mortgage interest rates and a slow real estate market, the title insurance folks grew premiums and fees earned by 5.2% compared to the second quarter last year, and they produced $24.2 million of pre-tax operating income, down from 46 million in the second quarter last year. And title combined ratio was 99 in the quarter compared to 95.4 in the second quarter of last year. And of course, Carolyn will give us a little more insight into those figures. Conservative reserving practices continue to produce favorable prior year loss reserve development in both specialty insurance and title insurance. Our balance sheet remains strong and we continue to invest in our new specialty underwriting subsidiaries as well as in technology and in talent opening remarks i'll now turn the discussion over to frank and frank will then turn things back to me to cover specialty insurance and then i'll turn things over to carolyn to cover title insurance and then we'll open it up to the q a part so with that I hand it to you Frank.
Thank you Craig and good afternoon everyone. This morning we reported net operating income of $209 million for the quarter compared to $202 million last year. On a per share basis, comparable year-over-year results were $0.83 compared to $0.76, a 9% increase. Net investment income increased 2.4% as a result of higher yields on the bond portfolio. Partially offset by lower invested asset base from returning excess capital and then included the $500 million paid as a special dividend during the first quarter of this year. Our average reinvestment rate on corporate bonds during the quarter was 5% compared to the average yield rolling off of about 4%. The total bond portfolio book yield now stands at 4.7% compared to 4.5% at the end of last year. Turning now to loss reserves, both specialty insurance and title insurance recognized favorable development in the quarter leading to a benefit in the consolidated loss ratio of 2.1 percentage points compared to 2.2 points last year. Within specialty insurance, workers' comp continued to have strong favorable development and accounted for the majority of the group's total favorable development. commercial auto and property also had favorable development while general liability had unfavorable development however the year-to-date impact was less than one half of one percent on the specialty insurance loss ratio we ended the quarter with book value per share of 25.14 which inclusive of the regular dividend equated to an increase of just over 12.6 present, resulting primarily from our strong operating earnings and higher investment valuations. In the quarter we paid 71 million in regular cash dividends. We did not repurchase any shares during the quarter and our repurchases since the end of the quarter were not material, so that left us with just over 200 million remaining in our current repurchase program. I'll now turn the call back over to Craig for discussion of specialty insurance.
All right, thanks Frank so especially insurance net written premiums were up nine percent in the second quarter and that came from strong renewal retention ratios rate increases on most lines of coverage and solid new business writings and an increasing level of premium production in our new specialty underwriting subsidiaries we continue to expand our ENS presence with ENS direct written premiums up 12% so far this year. As mentioned in my opening remarks, in the second quarter, specialty insurance pre-tax operating income was $254 million, and the combined ratio was 90.7. The loss ratio for the second quarter was at 62.5, and that included 2.9 percentage points of favorable prior year loss reserve development, compared to 64.3 in the second quarter last year that included 2.5 points of favorable development the expense ratio was in line with expectation coming in at 28.2 in the second quarter compared to 28.1 in the second quarter last year so given these top line and bottom line results we continue on our journey of profitable growth within specialty insurance now to just dive into the details a little bit more on commercial auto and workers compensation commercial auto net premiums written grew 10 percent in the second quarter while the loss ratio came in at 70.3 compared to 72.3 last year rate increases on commercial auto were approximately 14 percent which will keep us ahead of the loss severity trend we're observing workers comp net premiums written were two percent lower in the second quarter while the loss ratio came in at 48.5 compared to 50.7 last year we saw rates stay relatively flat this quarter while loss frequency trend continues to decline and loss severity trend remains stable. So here, given the higher wage trend within payroll, which is what we apply our rates to, and given the declining loss frequency trend and stable loss severity trend, we think our rate levels for workers' compensation remain adequate. it. So going forward, we expect solid growth and profitability to continue in specialty insurance throughout the rest of this year, reflecting the success of our specialty strategy and our operational excellence initiatives. We also expect to continue to see growing contributions from our newer specialty underwriting subsidiaries.
So that's a specialty insurance group and I'll now turn the discussion over to Carolyn who will report on our title insurance group Carolyn thank you Craig title insurance reported premium and fee revenue for the quarter of 698 million this represents an increase of 5% from the second quarter of last year although we are pleased with continued revenue improvement we've seen very little change in the real estate and mortgage market conditions. Premium from our direct title operations were up 3% from second quarter of 2024. Our agency produced premiums were up 7% and made up 77% of our revenue during the quarter, up from 76% during the second quarter of last year. Commercial premiums increased this quarter and were 23% of our earned premiums compared to 21% in second quarter of last year. Investment income was also up this quarter nearly 12% compared to second quarter of 2024. Our overall loss ratio increased to 2.9% this quarter compared to 2.3% in the second quarter of last year. Although prior policy years continued to develop favorably, the amount of favorable development in the second quarter of this year was less than the second quarter of 2024. Our pre-tax operating income this quarter was $24 million compared to $46 million in the second quarter of last year. Our expense ratio was 96.1% compared to 93.1% in the second quarter of 2024. Cost from the settlement of a legal matter was the primary driver of this increase. Our combined ratio increased to 99% this quarter compared to 95.4% in the second quarter of last year. During the quarter, we continued progressing with the advancement of digital transaction tools and solutions for our directs and our title agents through our strategic partnerships. We remain focused on the importance of providing our agents and employees with the innovative technological solutions required to maintain a competitive edge. These include our internal systems, such as our remittance, policy issuance, and rate engines, to work seamlessly with all the closing and production platforms. And I'll now turn it back to Craig.
Okay. Thanks, Carolyn. So, profitable growth continues in specialty insurance, And in title insurance, we remain focused on profitability in a very challenging marketplace. As noted in the financial supplement, annualized operating return on beginning equity improved to an annualized rate of 14.6% compared to an annualized rate of 12.1% in the second quarter last year, which is reflective of our thoughtful management of capital. So, that concludes our prepared remarks, and we'll now open up the discussion to Q&A, where either I'll answer your questions, or I'll ask Frank or Carolyn to help me out.
Operator
As a reminder to ask a question, please press star, followed by the number 1 on your telephone keypad. To withdraw any questions, please press star 1 again. We'll pause for just a moment to compile the Q&A roster. Our first question comes from Gregory Peters from Raymond James. Please go ahead. Your line is open.
Good afternoon, everyone. In your comments, Craig, you talked about retention across your specialty property casualty business. Can you give us a little more detail about how retention is moving across different lines of business?
Sure, Greg, I'd be happy to. So we do look at our renewal retention metrics by line of business and by each one of our 17 different subsidiary companies and I can tell you that regardless of the line of business or the subsidiary we are experiencing renewal retentions north of 85% pretty much across the board. And, you know, we think that is attributable to our value proposition, whereby we're not selling price, we're selling service, we're selling long-term commitment to these market segments, selling our specialty expertise in underwriting, customer service, risk control, claims handling. And so long and short of it is we think we have sticky renewal retention ratios given our, again, our value proposition and the kind of clients and distribution partners we work with that are focused on the long term and not those distribution partners that the so-called spreadsheeting of price and going with low price, that's not the type of customer that we go after. And therefore, as I say, across all lines of business, across all subsidiaries, very strong renewal retention ratios.
Yeah, the reason for the question is there's a lot of commentary on the other calls that have happened so far about competition pockets in certain areas. And one of the themes that has emerged in the first half of this year is increasing competition in the larger account business.
And it's more property than probably where you play, but maybe you could segue and just talk a little bit about how your business at Old Republic Risk Management is doing, because i know that targets the larger account larger corporate market yeah thanks thanks for that that question greg and i agree with your your uh comments i think differentiate us um even on property for us uh we had a slight up to um rate increase this quarter because the property we're riding is is not catastrophic expose you know we're riding uh approached along with the other lines of business. And yes, some of our property has catastrophic exposure and we buy catastrophic reinsurance to protect us on that. But a lot of our peers are portfolios so that others are experiencing and um you know overall i think um are um the competition that we're seeing elsewhere is um nothing nothing that i would say is a dramatic change from what we've seen earlier again back to our value proposition and the kind of clients that that we're seeking You know, an example where perhaps we have seen competition and we've pulled back a little bit, as I've talked about the last few quarters, a public company, D&O, in our subsidiary that does write a fair amount of that business, we've been pulling back. And rate decreases on public D&O looks like they're starting to flatten out, still a little negative. But we've been encouraging our underwriters there to maintain rate. And if that means top line is down like it was last year on public D&O, that's perfectly fine. So, you know, we're not immune to the competition, but I think there are some differences in our business model as well as the lines of business that we're in. And in risk management, just had a 40-year risk management client into our corporate headquarters here a couple of days ago and had a nice conversation with them. And, you know, on that business, as you know, Greg, it's all about service, and that's why we have 40-year relationships with a lot of the big clients. They retain a lot of their risk themselves, so they're not looking to us for risk transfer. They're looking to us for service, and we have large deductibles or they have captives that we cede most of the premium back to. and again there too that requires a relationship and long-term focus there's a lot of collateral at stake there and um so when we collateralize we have those obligations collateralized by the client again it has to be a relationship and and we have very strong long-term relationships in our large account risk management business for sure and we continue to add new clients based on There's a lot of discussion, as you know, from attending RIMS or other events among the risk managers of large companies, and we have a top-tier reputation.
Yeah, thanks for that additional information. I guess I'll just ask one other question. I'll pivot to the title business. one of the things that's popped up in the second quarter was the issue around what's happening with title insurance rates in Texas. And there's a rate decrease that's being implemented. And just curious about what your views on that are.
Do you anticipate that that's going to spread to other states or how does that impact your operations and just give us a broader sense of how you see the market reacting to that uh you know every system is unique in in uh promulgating uh specific rates and other states uh we file rates and um carolyn has i know been working closely with her team to take a very careful look at our rates and make sure we have adequate rates in every state. And our assessment, I think thus far, Carolyn, you correct me if I'm wrong, that the promulgated rate and tax adequate rate, but I'll let you talk more about that.
Yeah. Also, Greg, if I'm not mistaken, right now that rate decrease has not gone into effect because it's been challenged and the last I checked the challenge was held up in the court and I think they're trying to come to maybe a more reasonable settlement than what was initially proposed so that has not taken effect yet but you know when they generally in the promulgated states like Texas New New Mexico and Florida, you know, they look at prior year history and kind of determine if it's an adequate rate. And we have a lot of input on determining that as well. Our state associations do. So I would think whatever we come up with will be an adequate way to still service the industry.
Okay. Thanks for the answer.
Operator
And ladies and gentlemen, once again, it is star one. If you have a question, we'll go next to Paul Newsome from Piper Sandler.
Good afternoon. Thanks for the call. One may need to revisit to capital management. There was no stock repurchase in the last quarter. It sounds like not to date. Why not?
And how do you think about your own capital position at the moment? sure paul i'll be happy to uh talk about that so as frank mentioned in his opening comments as a reminder we had a two dollar special dividend that we uh that we just paid yeah in the first quarter and um that was on top of the um large amount of share repurchases that we made last year and in the preceding few years so we closely look at at both tools in our tool chest special dividends as well as and um uh prices relative to our uh our book value when we make share repurchases uh decisions so you know that the higher is to book the the less we're going to be excited about share repurchases. And on the other hand, the lower the market price is to book, the more excited we get about share repurchases. And then to manage capital, we're cognizant of ROE. As I mentioned in my opening comments, we're very thoughtful about capital management. And while we think we carry probably more capital than some of our peers, we want to maintain a strong balance sheet and be prepared for the unforeseen. And we want to continue to invest, be able to invest in new opportunities. So we're conservative in the amount of capital we carry, but we're also we, and we don't want to carry too much capital. And that was primarily what led us to the decision that on top of all the share repurchases we also issued a special dividend in the first quarter because we were carrying far too much capital so we'll use both tools and we'll look at both in the consideration what has the best benefit to shareholders. And then we present that to our board with a recommendation from management and proceed accordingly.
Second question, maybe a little bit more commentary on the investment outlook. You know, obviously a combination of cash flow and new money yields. Where do you think the longer term trend here, at least the intermediate trend takes for investment?
Well, I'd be happy to start it off. And if you, I think Frank might have addressed it in our opening comments, but if you compare where our new money rates are coming in on our fixed income portfolio vis-a-vis our average yield on our portfolio, that's getting pretty tight. I think that there can't be a big expectation that that's going to improve dramatically, incrementally maybe. There still might be a little room comparing those differences between new money and our existing yield, but no big dramatic. And Frank, please feel free to correct me if you see it differently or if you have anything to add.
No, I would just say the biggest component now is as we've returned so much capital our base is so much lower from a yield perspective that's right it's tightening up i would expect there to be improvements all thing things being equal but no longer are the would i expect that 10 to 15 percent and higher that we had somewhere along the the mid single digits is probably what i would say all things being equal appreciate it nice to be able to put frank in the hot seat appreciate that paul the next question will come from Evan Tyndale, Byram Capital.
Hi, thanks for taking my call. Hi, Evan. Hi. My question is on the specialty insurance segment. I mean, you guys have pretty consistently now been posting combined ratios like around 90, 91. And obviously, you guys guide to 90 to 95 over the full cycle. And I'm just wondering, has anything, like given how consistently you've kind of outperformed or almost outperformed that range. Can you talk about like, has anything fundamentally changed in terms of the mix of your business or how well you guys are executing that might allow you to kind of tighten or lower that range in terms of guidance on the combined ratio for the full cycle? Or do you guys still expect that to go back up to 95 at some point?
Well, you know, let me first just say portfolio and the fact large, catastrophic, some of that exposure. When you write a large amount, you can post some pretty decent combined ratios in good quarters, and then you post ratios in quarters where there is a catastrophic event. So be in that range of 90 to 95. We have written a little bit more property in short-tail business, as you can tell in the supplement. You can see the growth rate in property has been a little bit stronger as we improve our footprint with our Inland Marine new specialty subsidiary, our new ENS specialty subsidiary. They're able to write coverages. And so a huge area for us. So given our predominantly casualty-focused business, given our conservative loss-reserving approaches, that 90 to 95 is still a good target and one that, you know, If you were able to parse out the property catastrophic portions of our competitors' combined ratio and strip out the other drivers of lower combined ratio lines of business, I think, you know, that's a pretty respectable target and difficult to achieve a much lower on the lines we write, particularly given the proportions of our lines of business.
Okay, great. Thank you. One other question. Obviously, there's been, you know, AI is the talk of the town in various industries, and I'm just curious how you guys are playing with or implementing AI at this point, and if you think it can maybe make the underwriting process more efficient or help you guys cut costs or otherwise impact your business over the next, you know, three to five years. sure we have we are involved as and with our subsidiary companies at explore the ai that are
consider building ourselves we just uh announced that we an ai lead corporate holding company level that can help lead our uh steve cross uh he is and it's hard too to to talk about ai without talking about data analytics, because you really need the data analytics to go hand in hand with the AI to put the AI to work for you. And when we talk, as I commented in my opening comments, we're making investments in technology. We're making a concerted effort to retire our legacy IT desk. That's the first step. You've got to have, and then in order to, in turn from there, leverage what's available in AI, you've got to have energy in place. So we are investing in technology. We're retiring our legacy technology desk. We're investing in data analytics here too. a couple years ago at the corporate level we hired a data and analytics expert and uh that expert our john giangelo works with our uh companies uh and then steve cross and his team can set on top of that what's available from from uh uh the ai we think of it as an executive team uh in two ways either help you make better decisions or it will help you be more efficient so we have numerous ai projects we're exploring and one of the first cats going to help us with efficiency or is this an ai project that's going to help us with better decision making and we have several pilots in place several that are uh helping us right now with better decision making better efficiencies. And we have numerous in the pipeline. And again, we're building the data and analytics for that to sit on top of. And then the data and analytics sits on top of modern IT technology, which is what we're investing in.
Awesome. Thank you. And actually, maybe one more if there's time. On the title insurance business, do you guys think that you need to see mortgage rates fall before you start to see combined ratios getting back into the you know 96 95 or below range or do you think you can improve margins in the kind of in the current kind of housing environment and then let you ask we are not interest rates a very slow real estate market um that we're going to be at the top end of that range and many discussions and we're working very
hard assuming the same environment that exists today we should be performing at a 95 combined ratio to look at money and i think an example of that is our decision to to discontinue our focus on providing a closing platform because there's other um partners and uh closing platforms that our technology works well with we don't need to be the ones providing the closing platform So that's an example of, you know, we're looking to make sure we're being as efficient as possible. Our hope for this year was that we would get below that 95 mark. Carolyn still has, and her team still have aspirations to bring that down. We had the litigation expense we talked about earlier that drove up. Last year, we finished at 97. This year, you know, it could be in that range. but our aspiration is to get it below 95. Carolyn, is there anything you would add to that?
No, just that, you know, absent of any kind of an increase in the market, we just continue to look inward to see what we could be doing at a more efficient level that will help us save money. We never stop doing that. But given the fact that, you know, we have to understand that this market we have right now might be what we have. so we we've just got to figure out what we could be doing different and so we're honestly looking at that every day so we don't just depend on the market to get better we depend on what we're doing as well thank you and we'll take a follow-up from gregory peters from raymond james hey um real quick if we go to the supplement on page two um i wanted to just give us what's going on inside the
the small line home and auto warranty. That seems to be growing quite nicely. And then the other question I have is just on the new business initiative. Cyber, I think, is one of those initiatives and not hearing great things about the pricing conditions in that market. So maybe you could talk about those two areas. Thank you.
Sure, Greg. I'd be happy to talk about both of those so on home and auto warranty the majority of the growth that you see there is really all the growth that you see there is auto warranty we have entered into and to continue to have the auto warranty business grow the home warranty business is not is not growing real estate cycle, those warranties that we write are in conjunction with a property purchase, a new home purchase. So, you know, the real estate market interest rates have not helped our home warranty subsidiary. That'll change, just like in title. We know things will turn at some point. But it's, you know, that's why we're diversified. And even in home and auto warranty that's why okay let's the real estate market is tough right now let's focus on on building some new uh relationships that can help us grow our auto warranty business so that's that's what's going on there um you know on the on the cyber uh uh front uh one of our new uh subsidiaries is cyber indeed and uh met with that team and um one of the things i said to them is uh given that you're a startup the way that we handle startups is there's no incentive to put premiums on the books um in the short term you know we even even variable compensation um we will on a new startup we'll just say listen that's going to be fixed for three years uh because we know it's going to take time to grow we don't want you to grow too fast we don't want you to grow into a market that's too competitive we want to give you time we focus that where our definition of success is 10 years out and when we look back you know how does it look not not the first three years so in cyber um everything we hear from that team is that um rates down over the last couple years but this indication that rates are are at least flattening out and um you know i read this morning from others that there's indications of greater pricing discipline, greater underwriting discipline in the cyber arena. So the discussion we've had with our cyber team is, listen, focus on building out your team. We know you're going to be an expense load for the next couple, two to three years. Take your time, build it right, wait for the market to, and for you to be certain that there's price adequacy in the marketplace. And then, so actually the timing feels pretty good to us because if they wanted to write it a lot of cyber today, they couldn't, they're building it out. We don't expect to write premiums until probably beginning of next year. And even then we'll go slow and, but we'll be ready. And there's no incentive for them to put any premiums on the books until the timing's right. And meantime, they're just focused on building out that operation. And they have their sleeves rolled up and working day and night to get it built so that when the market is right, we'll be there for it.
It makes sense. Thanks for the answers.
Operator
Once again, ladies and gentlemen, that is Star One. If you have a question today, we'll pause for just a moment. At this time, there appear to be no further questions. I'd like to hand the call back to management for any additional or closing remarks. Thanks.
Well, we appreciate all the questions and engagement. Sometimes our August conference call is a little slower, given people are on vacations and enjoying summer. So we wish everyone the best. Enjoy the rest of your summer. And again, appreciate your interest in Old Republic. And we'll be back next quarter to let you know how things are going. So, and by the way, there's the siren in the background if Greg Peters is still listening. So, all right. Thank you very much.
Operator
And everyone, that does conclude today's conference. We would like to thank you all for your participation today. You may now disconnect.
