Earnings Call Transcript - ORI Q3 2025

Operator, Operator

Thank you for your patience. My name is Tina, and I will be your conference operator today. I would like to welcome everyone to the Old Republic International Third Quarter 2025 Earnings Conference Call. It is now my pleasure to turn the call over to Joe Calabrese with MWW.

Joe Calabrese, MWW

Thank you, Tina. Good afternoon, everyone, and thank you for joining us for the Old Republic conference call to discuss third quarter 2025 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 dated October 23, 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 statement 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. 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 responses to questions. GAAP reconciliations are included in the press release. Presenting on today's conference call will be Craig Smiddy, President and CEO; Frank Sodaro, 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 turn the call over to Craig. Please go ahead, sir.

Craig Smiddy, President and CEO

Thank you, Joe. Good afternoon, everyone, and welcome to Old Republic's third quarter 2025 earnings call. This morning, we issued a separate news release about our agreement to purchase Everett Cash Mutual through a sponsored demutualization. This demonstrates our commitment to pursuing profitable growth in our specialty insurance business. Everett Cash Mutual, or ECM, is a top insurer of farm and agricultural operations across the country, with $237 million in direct premium written in 2024. We’ve also added a new slide about ECM to the appendix of our investor presentation on our website for those interested. Strategically, ECM aligns well with our Specialty Insurance portfolio due to our shared cultural values and their specialized focus on farm and agricultural insurance. This acquisition will allow further product diversification within our existing specialty insurance business, and we will not compete with any of ECM's current offerings. Once the transaction is complete, we expect ECM to be well-positioned for profitable growth both geographically and through new product offerings. We’re excited to welcome the ECM team into the Old Republic family. Now, regarding the earnings release. Our momentum of solid growth and profitability continued in the third quarter, producing $248.2 million in consolidated pretax operating income, up from $229.2 million in the third quarter of 2024. Our consolidated combined ratio was 95.3%, compared to 95% in the same quarter last year. Our balance sheet remains robust as we continue to invest in new specialty operating companies, technology, and talent across the organization. Our annualized operating return on beginning equity rose to 14.4%, up from 11.9% in the third quarter last year, reflecting our strong operating earnings and effective capital management. In Specialty Insurance, net premiums earned grew by 8.1% compared to the third quarter of 2024, resulting in $207 million of pretax operating income, which is an increase from $197.3 million the previous year. The Specialty Insurance combined ratio was 94.8%, compared to 94% in the third quarter last year. Despite the ongoing slow real estate market, Title Insurance saw a premium and fee growth of 8.3% compared to last year, generating $45.7 million of pretax operating income, up from $40.2 million last year. The Title Insurance combined ratio was 96.4%, down from 96.7% in the third quarter of last year. Our cautious reserving practices continue to yield favorable prior year loss reserve developments in both Specialty Insurance and Title Insurance, and Frank will share more details on that topic. I will now hand it over to Frank, who will return to me to discuss Specialty Insurance, followed by Carolyn on Title Insurance, and then we will open it up for Q&A. Frank?

Frank Sodaro, Chief Financial Officer

Thank you, Craig, and good afternoon, everyone. This morning, we reported net operating income of $197 million for the quarter, compared to $183 million last year. On a per share basis, comparable quarter-over-quarter results were $0.78, compared to $0.71, a 10% increase. Net investment income increased 6.7%, primarily as a result of higher yields on the bond portfolio. Our average reinvestment rate on corporate bonds acquired during the quarter was 4.7%, compared to the average yield rolling off of about 4.1%. The total bond portfolio book yield 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 2.5 percentage points, compared to 1.3 points of favorable development last year. Within Specialty Insurance, workers' comp continued to have significant favorable development and accounted for the majority of the group's total favorable development. Commercial auto, general liability, and property all had favorable development in the quarter. As we have mentioned in the past, general liability is a relatively small but growing line that does have some quarter-to-quarter volatility. This quarter, GL had favorable development, and the year-to-date impact was negligible on the Specialty Insurance loss ratio. We ended the quarter with a book value per share of $26.19, which, inclusive of the regular dividend, equated to an increase of 18.5% year-to-date. That resulted primarily from our strong operating earnings and higher investment valuations. In the quarter, we paid $71 million in regular cash dividends and repurchased $44 million worth of our shares. We did not repurchase additional shares since the end of the quarter, leaving us with just over $910 million remaining on our current repurchase program. The recently launched operating companies and the ECM acquisition do not materially hinder our ability to return capital. So as usual, we will be discussing with our Board of Directors the most efficient way to return capital by the end of the year. I'll now turn the call back over to Craig for a discussion of Specialty Insurance.

Craig Smiddy, President and CEO

Okay. Frank, thanks for that summary. Specialty Insurance net written premiums were up 6.9% in the third quarter, with strong rate increases on commercial auto and general liability that I'll talk about momentarily. We had solid renewal retentions, strong new business writings, and an increasing amount of premium in our new specialty operating companies. As mentioned in my opening remarks, in the third quarter, Specialty Insurance pretax operating income was $207.7 million, and the combined ratio was 94.8%. The loss ratio for the third quarter was 63.5%. That included 3.4 percentage points of favorable prior year loss reserve development, compared to 65.2% in the third quarter last year, which included 1.7 points of favorable development. The expense ratio was 31.3% in the third quarter, compared to 28.8% last year, primarily reflecting higher personnel expenses, including those within our newest specialty operating companies not yet producing premium, and ongoing investments in technology. For note, the year-to-date expense ratio and loss ratio tend to be better indications of run rates, and they also reflect changes in our mix of business toward lower loss ratios and higher commission ratios. Now to give you some details around our two largest lines of business: commercial auto and workers' compensation. Commercial auto net premiums written grew 7% in the third quarter, while the loss ratio came in at 68.3%, compared to 67.1% last year. Rate increases remained at the 14% level, which is the same we saw in the second quarter, and that's commensurate with the loss severity trend we're observing. Switching to workers' compensation. Net premiums written grew 6.7% in the third quarter, while the loss ratio came in at 63.8%, compared to 58.8% last year. Rates continue to remain relatively flat. And here too, that's consistent with what we observed in the second quarter. Loss frequency trend continues to decline, more than offsetting the increase in loss severity trend. So given the positive wage trend within payroll, and again that's what we apply our rates to, a declining loss frequency trend, and a relatively stable loss severity trend, we think our rate levels continue to remain adequate. So we expect solid growth and profitability in Specialty Insurance to continue, reflecting the success of our specialty strategy and our growing contributions from our new specialty operating companies. Our operational excellence initiatives continue to contribute to this profitable growth by leveraging Old Republic's collective knowledge and expertise. And we also here too included a new slide on these initiatives in the appendix of our investor presentation on our website. So that concludes my remarks on Specialty Insurance, and I'll now turn the discussion over to you, Carolyn, to report on Title Insurance.

Carolyn Monroe, President and CEO of Old Republic's National Title Insurance Group

Thank you, Craig, and good afternoon, everyone. Title reported premium and fee revenue for the quarter of $767 million. This represents an increase of 8% from the third quarter of last year. The third quarter market story is a continuation of what we reported last quarter. We still see strong activity in the commercial sector, a modest uptick in refinance activity, and a softness in the residential purchase market driven by persistent price and affordability challenges. Overall, we are pleased with our revenue improvement during the year. Premiums from our direct Title operations were up 8% from the third quarter of last year. Agency-produced premiums were up 11% and made up nearly 80% of our revenue during the quarter, up from 78% during the third quarter of 2024. Commercial premiums increased this quarter and were 26% of our earned premiums, compared to 20% in the third quarter of last year. Investment income was also up this quarter, by nearly 11%, compared to the third quarter of 2024, primarily reflecting higher investment yields earned. Our overall loss ratio decreased to 2.7% this quarter, compared to 2.8% in the third quarter of 2024. The slight improvement relates to continued favorable development in prior policy years. Agency premiums accounted for a larger share of our revenue this quarter, raising agent commissions and increasing our expense ratio by 1.9%. The remainder of our expenses decreased by 2.1% relative to premiums and fees. These changes led to a combined ratio of 96.4% for this quarter, an improvement over both last quarter and the 96.7% reported in the third quarter of 2024. Pretax operating income this quarter was $46 million, compared to $40 million in the third quarter of last year. During the quarter, we continued progressing with the advancement of digital transaction tools and solutions for our direct operations and title agents through our strategic partnerships. We remain focused on the importance of providing our agents with the innovative technological solutions required to maintain a competitive edge. Thank you. And with that, I will turn it back to Craig.

Craig Smiddy, President and CEO

Okay. Thank you, Carolyn. Well, that concludes our prepared remarks. So we'll now open up the discussion to Q&A where I'll try to answer your questions or I'll ask Frank or Carolyn for some help.

Operator, Operator

And our first question comes from Gregory Peters with Raymond James.

Gregory Peters, Analyst

For my first question, I want to revisit Frank's comments on capital. I'm curious about how you are currently measuring excess capital, as it seems there's been a shift. Alternatively, perhaps there's been a strategic decision not to hold as much excess capital. Either way, I'm interested in how you are assessing capital at this moment. Are you looking at reserves, or what ratios are you considering, and how does this relate to Frank's remarks in the fourth quarter?

Craig Smiddy, President and CEO

Yes, Greg. I'll start, and if Frank has anything to add, he can add it. Last year when we declared the $2 special dividend, we made note that we had this nice problem of continuing to have operating income retained earnings that were building faster than we could return capital to shareholders either through share repurchases or dividends. And so we issued a special dividend. When we contemplate that and discuss that with our Board, we look at several different enterprise risk management measures. And one of those is certainly the amount of capital we hold relative to the reserves. But there's been no major shift at all. It's really just a matter of, again, having a nice problem where we continue to just build capital faster than we could deploy it. So as we sit here this year, the same kind of thing has happened. We have built up capital again, and we have done so faster than we're able to return it through share repurchases or ordinary dividends. So as Frank indicated, it's a matter that, as we always do, we'll take up with our Board and suggest the best ways to return that to shareholders in a way that is most productive for the shareholders. So that's, again, no shift. We continue to look at multiple different metrics when we look at capital and we manage it thoughtfully as I indicated in my comments, and do a significant amount of analysis and make recommendations accordingly to our Board.

Gregory Peters, Analyst

I was reviewing your slide on Everett and was wondering if you could provide more details about this entity. You mentioned that there isn't much overlap in terms of products. I'm interested in your perspective on this business and how it will fit within Old Republic. More importantly, considering you have five start-up operating companies outlined, will this be the sixth as you explore further types of businesses? Any additional insights would be appreciated.

Craig Smiddy, President and CEO

Sure, sure. So I'll start with the latter part of your question. And that is we definitely look at it as a new operating company within our existing portfolio of operating companies. I think that would take us up to 18 companies within our Specialty Insurance, and then, of course, our Title Insurance being our 19th. So one of the things that was very, I think, attractive to ECM was that decentralized model and the degree of independence and accountability that we give to each of those operating companies. And as I mentioned as well, just a strong cultural alignment of integrity and transparency and the other components of our cultural tenets that we share. So as far as the business itself, we, again, are thinking that it is very complementary, doesn't compete with our existing segments. It's a specialty segment in the marketplace. And that is the sole focus of Everett, which is exactly what our strategy is, and that is for our each of those 18 different operating companies to be an inch wide, mile deep in their specialty, focused very narrowly on what they do and do it better than anybody else. And ECM checks every one of those boxes. So I guess getting into more of the technicals, as I mentioned, ECM focuses on farm and ag business. And in that portfolio, farm owners and commercial, multi-peril make up 70% of their coverages, with inland marine and commercial auto each making up about 9% of their coverages. And another important attractive note is that their business skews more toward short-tail lines of coverage, which a lot of the new companies that we've added lately to diversify our portfolio have been, which is short tail kind of line, so you have a much faster understanding of how the business is performing. And again, we intend to give ECM the capital necessary to continue to drive expansion of their business. We expect they'll do that through geographic expansion. They started some geographic expansion by making an acquisition in late 2022 when they made an acquisition that allowed them to expand westward. And I think another attribute that is shared is they compete on the basis of expertise, relationships, ease of doing business around their specialty niche, just like all of our specialties. So again, their profile is very consistent with the profile of our existing specialty companies. And as such, we just think it's a perfect fit.

Gregory Peters, Analyst

Excellent. I would like to shift to the Title business for my final question. I remain hopeful that the residential market will improve. In the meantime, I know you discussed this in the last conference call. In Texas, there were some difficulties with certain rate rollbacks. Are you noticing any other regulatory pressures emerging in other states, or is everything else operating normally?

Craig Smiddy, President and CEO

Yes. I think it's been fairly consistent. Nothing significant has emerged. But Carolyn, you're much closer to the action than I am, so I'll turn it to you to maybe add any color you might have.

Carolyn Monroe, President and CEO of Old Republic's National Title Insurance Group

Greg, no, it's been fairly quiet on the regulatory front, nothing out of the ordinary. Still waiting on the Texas. It was appealed. There was supposed to be a hearing in December, but really no word on that yet. But that's the only thing that's out there brewing right now.

Operator, Operator

And our next question comes from the line of Paul Newsome with Piper Sandler.

Paul Newsome, Analyst

I want to discuss ECM a bit more. I'm not sure if we'll get more precise figures, but I'm interested in understanding how this relates to your upcoming capital decisions. I assume ECM will require at least the statutory capital from your end. Additionally, it seems there is a plan to allocate more capital to ECM. Also, you have any surplus capital still in your view. So, are these the correct aspects to focus on? Can we also discuss potential timing for these matters? It seems ECM is expected to close sometime in '26. Does this imply you might retain capital longer this time compared to some of the quicker decisions made at year-end in the past? I apologize for the multitude of questions.

Craig Smiddy, President and CEO

Yes, we expect this to increase our book value per share. You can infer from that that it will not match their statutory capital due to the nature of a sponsored demutualization. Overall, this process will not change our perspective on capital as we evaluate it with our Board at the end of the year. The analysis of our capital needs will not take the sponsored demutualization into account. Through this process, ECM will gain additional capital, allowing them to pursue growth opportunities. Mutual has limited capacity to raise capital, but under Old Republic, we will have the necessary capital available if required. However, we do not intend to contribute any extra capital beyond what they will obtain through the demutualization. In summary, this development does not significantly impact our view of our capital position or the recommendations we will make regarding capital returns to shareholders in the future.

Paul Newsome, Analyst

Okay. That's great. Now, I have some follow-up questions on a different topic concerning the challenges faced by commercial auto insurance. Last night, Selective announced some concerning news regarding this area. I understand if you prefer not to address that directly, but you are a significant player in the commercial auto market. Could you share your thoughts on the current state of the commercial auto business and your perspective on whether you are at an advantage in this situation?

Craig Smiddy, President and CEO

Sure, I'm glad to discuss that again. We take pride in our position relative to the industry, as I have mentioned in previous quarters. We continue to see positive loss reserve development in commercial auto, while many of our competitors have experienced unfavorable development in recent years. Several factors contribute to our strong position. First and foremost, we identified the severity trend early and adjusted our rates accordingly. We have been tracking this trend for the past six or seven years, responding with rate increases to counteract the trends we observed. As I mentioned earlier, the industry still faces challenges, with the severity trend running low teens while we’re implementing a 14% rate increase in commercial auto. Our approach over the past six to seven years has been to recognize the trend and secure corresponding rate increases when we have a solid starting point. Many of our peers didn’t recognize the trend early enough, resulting in insufficient or delayed rate increases. Additionally, there are unique aspects to our approach and operations that are vital. For instance, our trucking business, Great West, specializes exclusively in long-haul trucking. They have a dedicated team of statisticians and analysts who utilize data and analytics to adjust rates in real-time, rather than relying on industry standards like ISO, which many of our competitors do. If they are dependent on ISO for long-haul trucking, they are likely already at a disadvantage. We maintain our proprietary rate filings in every state, with 42 tiers within these filings, enabling us to segment and analyze our business while applying the appropriate rates promptly based on trends. On the claims side, we focus specifically on long-haul trucking claims. Our claims team includes a catastrophe response team that quickly addresses catastrophic events to manage potential severe losses. They have established relationships with EPA officials across states, so for incidents like spills, we know immediately how to mitigate damage effectively. I could elaborate further on our specialization in this area. Finally, reserving practices are crucial. Great West excels at setting case reserves quickly to their ultimate levels. In fact, when they establish these reserves, they often find them running slightly redundant, which is quite rare. Thus, our IBNR reserves are truly reserved for incidents we are unaware of at that time. When we know about an incident, our case reserves are promptly set to ultimate. We do not follow the common industry practice of gradually adjusting reserves. Regarding our IBNR reserving, we take a conservative approach. We establish a loss pick at the beginning of the year and maintain that figure for auto liability, even if results improve. If results indicate a stronger trend, we may raise the loss pick, but we will not lower it until we have data spanning several years. For long-tail lines, we are particularly conservative in managing IBNR. Our new Chief Claims Officer has been instrumental in addressing issues such as legal system abuse and severity tactics from plaintiff attorneys. One of his main responsibilities is to ensure that all our companies quickly set case reserves to ultimate across all lines of business so we can accurately assess our position and achieve favorable results over time.

Operator, Operator

And with no further questions, I will now hand the call back to management for their closing remarks.

Craig Smiddy, President and CEO

Okay. Well, we appreciate the interest. We appreciate the questions. And again, we look forward to welcoming the ECM stakeholders to the Old Republic family. And we also are looking forward to producing the strong profitable growth for our shareholders and all other stakeholders as well. And we look forward to reporting our year-end results next time we talk to you. So thank you very much.

Operator, Operator

Thank you again for joining us today. This does conclude today's conference call. You may now disconnect.