Operator
Hello everyone, thank you for joining us and welcome to Old Republic International Third Quarter 2026 Earnings Conference Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the call over to Jo Calabrese with the Financial Relations Board. Please go ahead.
Thank you. Good afternoon, everyone, and thank you for joining us for the Old Republic Conference Call to discuss third quarter 2026 results. This morning, we distributed a copy to the press release and posted a separate financial supplement. Both of the documents are available on Old Republic's website at oldrepublic.com. Please be advised that this call may involve forward-looking statements as discussed in press release dated October 22, 2026. 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 recent SEC filings and the risk factors discussed in the company's most recent Form 10-K and other recent SEC filings. You 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 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 Sadara, Chief Financial Officer, and Carolyn 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 call over Craig. Please go ahead, sir.
Okay, Joe, thank you. And good afternoon, dollars of consolidated pre-tax operating income, and that compares to $248 million. And our consolidated combined, and that compares to $95 million. annualized return on beginning to stand at it's identical to last quarter and for the first nine months of the year growth in book value per share including dividends stands at we continued to benefit from both in specialty insurance and title insurance and we think this continues to reflect our underwriting and reserving discipline and as usual Frank will provide more detail on reserve development in a few minutes. Specialty insurance net premiums earned were nine points premium growth. Specialty produced 204 million of pre-tax operating income and that compares to 208 million with a combined ratio of 96 which were 0.8 especially competition remains active across much of the marketplace although conditions do vary by and legal system abuse continues to put pressure on severity liability lines of coverage frankly those in time premiums and fees earned were 7.3% higher operating income, a ratio of 96.1 compared to 96.4. So while title continue to produce solid results, the recent increase in mortgage interest rates does create some uncertainty regarding transaction volumes as we go forward. But we think our title business has demonstrated over many decades an ability to remain profitable and adapt through a variety of housing and mortgage rate environments and of course uh carolyn will provide additional perspective of rating results later in the call so with that uh frank i think i'll turn the discussion over to you and then you can turn it back to me to discuss specialty and we'll follow that with carolyn who'll discuss thank Thank you Craig and good afternoon everyone.
This morning we reported net operating income of $181 million for the quarter compared to $197 million last year. On a per share basis, comparable quarter over quarter results were $0.73 compared to $0.78. Starting with investments, net investment income increased 1.5% in the quarter. However, if you exclude a few unique investment charges, net investment income would have increased by about 4%. The increase was due to a larger investment base, partially from the timing of our debt refinancing, and to a lesser extent, higher bond yields. Our average rate on corporate bonds acquired during the quarter was 5.4%, compared to the average yield rolling off of about 4.4%. The total bond portfolio book yield ended the quarter at nearly 4.9% up about 10 basis points from year end. Turning now to loss reserves. Overall the consolidated combined ratio in the quarter benefited 1.1 points from favorable development compared to 2.5 points of benefit last year. This was a result of higher favorable development from title insurance and a lower level of favorable development from specialty insurance. Now while the level of favorable development from specialty insurance was lower than we experienced in recent years, it is within the range of our expectations relative to our long-term target. Now digging into specialty coverages. Property continued to have significant favorable development that was higher than prior year. Workers comp had a solid level of favorable development, but was significantly lower than what was experienced last year. Commercial auto had favorable development that was in line with last year, while general liability and financial indemnity had elevated levels of unfavorable development. We ended the quarter with book value per share of $24.65, which inclusive of regular dividends represents an increase of 5.7% since year-end. This increase resulted primarily from solid operating earnings and the impact of the bargain purchase gain on the ECM acquisition, and that was partially offset by lower bond valuations related to the current interest rate environment. In the quarter, we paid $76 million in dividends and repurchased $114 million worth of our shares. Since the end of the quarter, we repurchased another $60 million worth of our shares, and that leaves us with about $460 million remaining in our current repurchase program. And I'll turn the call back over to Craig for a discussion of specialty insurance.
Okay, thanks, Frank. Specialty insurance net premiums written were up 10.5% in the quarter. However, as I indicated earlier, to give you a little more color around that, that figure includes ECM for the first time and also strong warranty business. So if we exclude ECM and we exclude business, net premiums written were up 4.4 percent in the quarter. So we think that's a growth rate that aligns with where we're at in the PNC underwriting cycle today. We saw strong rate increases on commercial auto and general liability and I'll talk about both of those lines individually in a moment and our overall retention ratios came in as expected and in line with the second quarter. So to provide some more color around our auto warranty business, just want to remind everybody that Old Republic's participated in this market for many decades through vehicle service contract programs with auto dealers and administrators. And recently, we made a strategic decision to increase our presence in that market by partnering with market-leading administrators with capabilities that align well with Old Republic's capabilities. Frankly, we view this business as an attractive source of growth and diversification because its performance is less driven by the P&C underwriting cycle that we see with administrators and the quality of their underlying program. I mentioned in my opening remarks, operating income was $204 million while the combined ratio was 96%. The loss ratio for the quarter was 64%, which included 0.8 percentage points of favorable prior year loss reserve development, and that compares to 3.5% in the third quarter last year when we included 3.4 percentage points of favorable development. The expense ratio for the quarter was 32%, compared with 31.3% in the third quarter last year. As you saw in the release, we began to provide an additional combined ratio analysis excluding the impact from the retail write-up portion of our auto warranty business. We did this because we reached an inflection point where the impact on the expense and loss ratios from this portion of our auto warranty business started to become more material due to the significant growth in those programs. This exclusion, as you can see in that supplemental exhibit, the expense ratio was 29.9 compared to 30.2 in the third quarter of last year. There's also some additional items here to note, and that is that there was a $20 million credit charge in the quarter that increased the expense ratio by 1.4 percentage points while a change in mix decreased the expense ratio somewhat in the quarter. And if you're comparing the third quarter of 25, as a reminder, there was a true up of seating commission in that third quarter of 25 that increased our third quarter 25 expense ratio by 0.9 percentage points so some moving uh piece turning to commercial auto our commercial auto net premiums written were up 5.7 percent in the quarter while the loss ratio came in at 71 compared to 68.3 in the third quarter last year loss trend continues to be impacted by legal system abuse and as we continue to closely monitor this trend as we have for for many years now we also continue to maintain our risk selection and pricing discipline when it comes to commercial auto during the quarter we achieved rate increases for commercial auto in the mid-teens which remain above our view of observed and anticipated loss trends At the same time, retention ratios remain stable, near 80%, so we think these results reflect a market that is rising pricing actions. We continue to benefit from favorable prior-year reserve development in favorable prior-year reserve development. Historical underwriting and reserving practices are currently cautious. In the commercial transportation market, conditions continue to vary. Conditions are probably most favorable for large fleets, particularly those operating one to five units face greater economic. We serve the full spectrum of commercial transportation market. Conditions across a broad range of operators and adjust our pricing and growth strategies. Workers' compensation net premiums written were up 7% in the quarter, while the loss ratio came in at 62.7%, compared to 63.8% in the third quarter last year. In the quarter, we gave up rate in the low single-digit range on workers' comp, because as severity trends remained constant, frequency trends continued to decline and wages continued to increase. So bottom line here is we think our rates remain adequate relative to these loss and exposure trends that we're observing. Moving on, generally speaking, we're very pleased to have successfully closed the ECM transaction this quarter. As we noted in the release, was accretive to book value per share and earnings per share. And our newer startup operating companies continue to make good progress although these businesses are still relatively small if you look at it in the context of old republic collectively they have grown approximately 40 percent year to date so to us that's evidence that the investments we've made over the past several years are gaining traction and will continue to contribute more meaningfully as we go forward. So overall, we continue to see a competitive P&C marketplace, and we remain focused on cycle management and risk-adequate pricing that will continue to produce profitable.
Thank you, Craig. Title reported premium and fee revenue of $823 million for the quarter, an increase of $7 million compared to the third quarter of $25 million. Interest rates rates remained elevated throughout the period and moved modestly higher following the Federal Reserve September rating increase. Despite the higher rate environment, our title operations delivered solid growth driven by continued strength in the agency channel where revenues increased 9% compared to third quarter of 2025. Revenue from our direct operations was flat compared to the prior year period. Commercial premiums represented 24% of premiums earned during the quarter compared to 26% in the previous year period. We continue to see a strong pipeline of commercial transactions with a diverse mix across many segments of the commercial real estate market. Agency generated premiums represented 81% of title revenues during the quarter compared to 80% in the third quarter of last year. Our loss ratio improved by 60 basis points this quarter compared to last year, driven by higher levels of prior year favorable development, reflecting our consistent and conservative reserving practices. Our expense ratio of 94% was up slightly over the 93.7 we achieved in the third quarter of 25. The growth in our agency business increased our agent commissions and contributed an additional 1.7 percentage points to the expense ratio as agency revenues represented a larger share of our title revenues. This increase was substantially offset by a 1.4 percentage point improvement from our continued focus on operational efficiency and disciplined expense management, resulting in a quarterly combined ratio of 96.1 percent. Year-to-date, our combined ratio has improved to 96.9 percent, reflecting continued progress toward our long-term objective of achieving a combined ratio below 95 percent. Investment income increased marginally in the quarter. All these items produce pre-tax operating income for the quarter of 50 million, up from 46 million in the third quarter of last year. As we move into the final quarter of 2026, we remain focused on improving operational efficiency and expanding our margins. A key part of that effort is our partnership with Qualia and the continued rollout of our new operating system. Implementation began earlier this year and will continue through the end of next year, strengthening our foundation for long-term success. Thank you, and I'll now turn it back to Craig.
All right. Thanks, Carolyn. So the fundamentals in specialty insurance remain strong as we navigate a competitive P&C marketplace. And our focus continues to be on cycle management and rate adequacy to achieve combined ratios within our target range, the headwinds of higher mortgage interest rates. Happy to take any questions and either I'll answer your question or I'll ask Frank or Carolyn for some help.
Operator
We will now begin the question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question is from the line of Gregory Peters with Raymond James. Your line is now open. Please go ahead.
Good afternoon. I will focus my first question on the specialty insurance segment in the top line. and you called out the effect of ECM and also the auto warranty business as it relates to the third quarter. I'm curious what your expectations are for those two components for the next couple of quarters. Are we gonna expect a continuing lift to the underlying organic revenue growth of your organization as we go through the next couple quarters or for those one-time deals?
Thank you for the question, Greg. And the short answer is yes. You can expect a continued lift from here on out within the auto warranty business is going to continue at a robust pace. and ECM will continue to contribute to top line and bottom line as we go through the subsequent and came to being and strategic initiatives on several fronts. So we expect some growth, and ECM was their need to have a quota share in place, So we no longer have that quota share in place, so that, too, will add to the net bottom line as well. So continued growth in both of those specialty and expense ratios will continue to provide the supplemental information so you can see things with and without.
The other very important area to cover would be the language that you included around the expense ratio in the third quarter. You call out a bunch of moving parts and so I was just looking for more detail. First of all, the credit loss is kind of a surprise. And I'm curious if there's anything, there's some underlying issues that you're growing concerned about there. And then, you know, when you talk about the tech spend and all that, just curious how this expense ratio should look over the next several quarters.
It was a loss that needed to be recognized under expense, under the gas account. These are highly infrequent types of events for us to manage collateral conservatively. And in this case, there was one unique performance and it was in a collateral deficit position that we have, as of so far, been unable to position and put up what we believe to be the ultimate loss for that program, assuming no recoverables beyond the collateral that we have. and so we don't expect that to have any further developments and we don't see this as a situation. With regard to the the overall focus a little bit more after we exclude the because it as I said in my opening comments it's just hit an inflection point where it's it's material to the reported expense ratio and and having a level set on were things with what things would look like if we weren't growing that business I think is is at least how we look at at things here so if you look at the expense ratio for the first nine months business. So I think the, if you take away some of those other things like the credit loss, I think the nine months year to date, including the auto warranty write-up are more in line with where things will be as we move forward.
Operator
So I think I've said we are working very hard to try to keep that below a 30 and we will continue to do so well those are my two questions i'll make you for a follow thank you as a reminder if you would like to ask a question please press star one to raise your hand and please pick up your handset when asking a question to allow for optimum sound quality your next question is from the line of paul newsome with piper sandler your
line is now open please go ahead good afternoon thanks for the call guys the the ECM and the mortgage businesses it's fair to assume that those businesses had an improvement or deficit of on the combined ratio are they are they having an impact on the bottom line for the combined ratio or is it just just a rejiggering of loss versus expenses The ECM is producing results that are right in line with our target results, so I'll make the assumption that that will be the case going forward.
So far this year, they have right within that range, and we've had limited weather activity, as you know. they are than usual um within our portfolio had uh very good weather uh results and as such are having a very we expect them to continue down that path um i was hoping to ask maybe a bigger
picture question where we could kind of step back craig and think about sort of the um company within the overall property casualty cycle and we're talking about special commercial obviously not necessarily title um and you know where you are from a profitability perspective and how you think that that profitability will evolve over the next couple of years um with the you know current you know pricing um soft market and because we're in the combination sort of even if we pull out um the the called excess expenses related to the efforts to to to have a whole bunch of new businesses which are great for the future. It looks like we're kind of top of the range from that from the other way. um from a biracial perspective um you know if the goal is to get back to some place in between with the goal how does that work out from a cycle perspective you think do you think we have a few little patient maybe go above the range for a bit before we can get into um kind of a normal position or do you think there's some other things that could happen along the way um given we are from a big picture perspective and i'd like to not ask about the quarter per se really the years sure sure i appreciate the question and i understand it um yeah i think you know where
we'll end the year hopefully we'll be within our our range for the year we've done a very good job looking back producing some you know our overall philosophy is is to again be between that 90 and 95 depending on where we're at in the cycle right now it would appear we're at the top end of that and we're going as we market in the next few and we're currently in the process of planning with each of our companies, 21 different operating companies, and putting together plans and making realistic assumptions about rate pressure. You know, our view is, as we move through the next few years of a soft market, that's what we're going to work hard to do. The big, very, to all of, as I mentioned, pricing discipline, and that's really top line in the cycle. It could be driven by the expense ratio. But we're keeping an eye on expenses. We're doing everything to maintain a profitable loss ratio. And, you know, we're sticking with our top end target that in the softest part of the cycle, we want to be at a 95 or below. We're thinking about it. I indicated in my end and trying to be price competitive is selling our value proposition. That's why we're diversified in and decentralized um into the specialty niches that are an inch wide mile deep we hope that our distribution partners and our customers are uh viewing us as a as a value that we can sell our specialization and and the services that come along with that um we think we'll we will uh come out the other end stronger at the end of the day we're going to stay focused on bottom line and and could suffer so far as I indicated even if you look at commercial auto you know it appears the market's rational we're able to get rate increases in the mid-teens on commercial auto rate increases in the mid-teens on general liability and that's going to be our focus is rate adequate pricing and we'll see what happens with the top line but so far you know we've been able to to do okay on the top line and and as i also mentioned our new startups are starting to produce some meaningful premium that will give us a bit of a tailwind on growth right now those startups are are driving up the combined ratio because of the lack of premium relative to their expenses so the more that comes into balance and and the premium growth continues to to move along and those startup entities you know that should help with again some tailwind on on top line even if our some of our other businesses might have to shrink a little bit so absolutely thank you very much thank you paul as a reminder if you would like to ask a question please press star one to raise your hand and please pick up your handset when asking a question to allow for optimum sound quality
your next question is from the line of gregory peters with raymond james your line is now open please go ahead uh hey craig can we go back if i look at the supplement for the specialty insurance segment and i'm focused on the home and auto warranty portion um and you give you give the net written premium and i'm looking at year-to-date numbers of like 545.9 which is up materially from the 350 the year ago um what what is this what is what do we what does this book look like is it a is it a 750 to 800 million dollar book is that where
we're headed or is it going even farther than that you asked things are progressing very on the Let me clarify, driven by auto warranty, even though we do put those two together. But auto warranty is growing significantly, and even on a net basis, you can see the growth you pointed out. We expect looking at it on a, you know, and even higher.
So, wait, $600 million, $700 million of annual premium or annual new premium?
And then I guess just go to the title business for a second. You know, with rates moving up a little bit, it doesn't feel good for the real estate market. and feels like there's pressure on forecasts going forward. I'm just curious if you have any different views on that view, on that position, relative to how you see your book of business performing.
And that is coming in and robust. We have the, of the, and in the residential interest rates, It's a major turning point for us, and now we're talking about in front of 30-year mortgage, we need to play a very significant role on that business. And the only other thing I would point out that I'm sure Carolyn would echo is that what we're seeing right now, you know, we have a footprint in title of the entire country. points in time where direct might be a leading indicator of where residential is going, we would not say that right now. We would not say that it's a good leading indicator because we're seeing too big of a delta between geographies and we're very limited in our geography on direct so it's uh residential is is driven by our agency and depending on which marketplace you're talking about um some look look pretty decent and others not so much so you know it's it's residential and and certainly uh 30-year mortgage rates are not helpful but um hopefully by the time commercial hopefully back into the end residential will pick up again and I would point out too refi is not a big refi move the needle thank you for that detail there are no further questions at this time I will now turn the call back to management for closing remarks okay well we very much appreciate all of your attention and participation in today's call and we're looking forward to our call next quarter where we'll be able to report our year-end results and we remain optimistic that given all the things we've discussed today that we'll have some good news to report in final quarter. So involvement again. Thank you.
Operator
This concludes today's call. Thank you for attending. You may now disconnect.
