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Old Republic International (ORI) - 2023 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION Consolidated Financial Statements This section presents the unaudited consolidated financial statements, detailing the company's financial position and performance Consolidated Balance Sheets As of September 30, 2023, total assets increased to $26.40 billion from $25.16 billion at year-end 2022, driven by higher accounts receivable and reinsurance balances. Total liabilities rose to $20.48 billion from $18.99 billion, primarily due to increased policy liabilities. Consequently, total common shareholders' equity decreased slightly to $5.92 billion from $6.17 billion Key Balance Sheet Figures | Balance Sheet Items ($ in Millions) | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total Investments | $15,413.2 | $15,859.9 | | Total Assets | $26,400.5 | $25,159.4 | | Total Policy Liabilities | $16,194.2 | $15,191.6 | | Total Liabilities | $20,484.8 | $18,986.2 | | Total Common Shareholders' Equity | $5,915.6 | $6,173.2 | Consolidated Statements of Income For the third quarter of 2023, the company reported net income of $52.6 million, a significant turnaround from a net loss of $91.7 million in Q3 2022. This was largely due to smaller net investment losses. For the nine months ended September 30, 2023, net income more than doubled to $408.0 million from $174.3 million year-over-year, with diluted EPS increasing to $1.42 from $0.57 Income Statement Highlights | Income Statement Highlights ($ in Millions) | Q3 2023 | Q3 2022 | Nine Months 2023 | Nine Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Total Operating Revenues | $1,947.0 | $2,098.2 | $5,508.4 | $6,287.7 | | Total Net Investment Losses | $(186.9) | $(377.1) | $(191.1) | $(549.5) | | Total Revenues | $1,760.1 | $1,721.0 | $5,317.2 | $5,738.1 | | Net Income (Loss) | $52.6 | $(91.7) | $408.0 | $174.3 | | Diluted EPS | $0.19 | $(0.31) | $1.42 | $0.57 | Consolidated Statements of Comprehensive Income The company recorded a comprehensive loss of $29.5 million for Q3 2023, a substantial improvement from the $242.9 million loss in Q3 2022. The change was primarily driven by a smaller net loss and reduced other comprehensive losses, specifically from unrealized losses on securities. For the nine-month period, comprehensive income was $374.7 million, reversing a $626.0 million loss from the prior year Comprehensive Income Summary | Comprehensive Income ($ in Millions) | Q3 2023 | Q3 2022 | Nine Months 2023 | Nine Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Income (Loss) As Reported | $52.6 | $(91.7) | $408.0 | $174.3 | | Total Other Comprehensive Loss | $(82.1) | $(151.1) | $(33.2) | $(800.4) | | Comprehensive Income (Loss) | $(29.5) | $(242.9) | $374.7 | $(626.0) | Consolidated Statements of Preferred Stock and Common Shareholders' Equity Shareholders' equity changes were influenced by net income of $408.0 million for the nine-month period, offset by common share dividends of $208.9 million and significant treasury stock activity. The company acquired $479.5 million in treasury stock, which was subsequently restored to unissued status, impacting common stock and additional paid-in capital balances - For the nine months ended September 30, 2023, the company acquired $479.5 million of treasury stock and restored it to unissued status, reducing common stock by $18.8 million and additional paid-in capital by $460.6 million12 - Cash dividends per common share of $0.245 and $0.735 were declared for the quarter and nine months ended September 30, 2023, respectively13 Consolidated Statements of Cash Flows For the nine months ended September 30, 2023, net cash from operating activities was $597.0 million, a decrease from $903.4 million in the prior-year period. Cash from investing activities was a net inflow of $139.4 million, reversing a $354.7 million outflow. Financing activities resulted in a significant cash outflow of $665.3 million, primarily due to $479.5 million in treasury stock acquisitions and $208.6 million in dividend payments Cash Flow Summary | Cash Flow Summary ($ in Millions) | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $597.0 | $903.4 | | Net Cash from Investing Activities | $139.4 | $(354.7) | | Net Cash from Financing Activities | $(665.3) | $(604.3) | | Increase (Decrease) in Cash | $71.1 | $(55.7) | | Cash, End of Period | $152.1 | $102.4 | Notes to Consolidated Financial Statements This section provides detailed disclosures supporting the consolidated financial statements, covering key areas like investments, reserves, debt, and segment performance - On January 1, 2023, the Company adopted ASU No. 2018-12 regarding accounting for long-duration contracts, which primarily impacts the discount rate for its life insurance business in runoff, but did not have a material impact on the consolidated financial statements17 - For the nine months ended September 30, 2023, the company experienced favorable prior-year loss development of $223.9 million, primarily from the General Insurance segment40 - In May 2023, the Board authorized a new $450.0 million share repurchase program. For the nine months ended September 30, 2023, the company repurchased 18.8 million shares for $479.5 million4849 Segment Pretax Operating Income | Segment Pretax Operating Income ($ in Millions) | Nine Months 2023 | Nine Months 2022 | | :--- | :--- | :--- | | General Insurance | $593.0 | $448.1 | | Title Insurance | $89.6 | $263.8 | | RFIG Run-off | $18.8 | $31.3 | | Total Segment Pretax Operating Income | $701.5 | $743.3 | Management's Discussion and Analysis of Financial Position and Results of Operations Management discusses the company's financial performance, emphasizing long-term underwriting profitability, balance sheet strength, and segment-specific results, including investment strategy and capital structure - Management evaluates performance based on long-term trends (10-year intervals) and focuses on pretax operating income, which excludes investment gains and losses, to better analyze the core insurance operations6171 - For Q3 2023, pretax income excluding investment losses was $250.8 million. Strong results from General Insurance were offset by declines in Title Insurance, which was affected by higher mortgage interest rates65 - In Q3 2023, the company returned approximately $192 million to shareholders, consisting of $68 million in dividends and $124 million in share repurchases67143 - Book value per share increased to $21.37 as of September 30, 2023, from $21.07 at year-end 202268 Segment Operating Results This section reviews the performance of each business segment, highlighting strong General Insurance growth, Title Insurance declines due to market conditions, and positive income from the RFIG Run-off segment Segment Pretax Operating Income | Segment Pretax Operating Income ($ in Millions) | Q3 2023 | Q3 2022 | % Change | | :--- | :--- | :--- | :--- | | General Insurance | $215.5 | $167.6 | 28.6% | | Title Insurance | $37.4 | $73.3 | (48.9)% | | RFIG Run-off | $4.5 | $9.2 | (50.6)% | Financial Position The company's financial position remains robust. As of September 30, 2023, cash and invested assets totaled $15.68 billion. The investment portfolio is conservatively allocated, with 83% in fixed income and short-term investments and 17% in equities. The debt-to-total capitalization ratio was 21.2% Capitalization Details | Capitalization ($ in Millions) | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total Debt | $1,590.9 | $1,597.0 | | Common Shareholders' Equity | $5,915.6 | $6,173.2 | | Total Capitalization | $7,506.5 | $7,770.2 | | Debt % of Total Capitalization | 21.2% | 20.6% | - The investment portfolio composition as of September 30, 2023, was approximately 83% in fixed income and short-term investments and 17% in equity securities87 Detailed Management Analysis by Segment This provides a deeper dive into each segment's performance. General Insurance net premiums earned grew 10.6% in Q3 2023, with a combined ratio improving to 89.0%. Title Insurance net premiums and fees fell 29.3% in Q3, with its combined ratio rising to 96.7%. The RFIG Run-off segment is being evaluated for strategic alternatives, including a potential sale - General Insurance Q3 2023 net premiums earned increased 10.6% YoY, driven by rate increases, high retention, and new business. The combined ratio improved to 89.0% from 90.0%108109 - Title Insurance Q3 2023 net premiums and fees decreased 29.3% YoY due to a drop in mortgage originations. The combined ratio deteriorated to 96.7% from 93.7%113115 - The company is exploring strategic alternatives, including the sale of the RFIG Run-off business118 Investment Portfolio The company maintains a conservative, high-quality investment portfolio, primarily in investment-grade marketable securities, with minimal exposure to high-risk or illiquid assets. As of September 30, 2023, 98.9% of the fixed income portfolio was investment grade. The average maturity of the fixed income portfolio was 4.3 years with a duration of 3.7 years, indicating that a 1% interest rate increase would cause an approximate 3.7% decline in the portfolio's fair value - The company's investment policy focuses on investment-grade, marketable securities and avoids high-risk or illiquid asset classes like CDOs, derivatives, or hedge funds126 - As of September 30, 2023, 98.9% of the fixed income portfolio was rated investment grade (Baa or higher)131 - The fixed income portfolio had an average maturity of 4.3 years and a duration of 3.7 years as of September 30, 2023137 Liquidity and Capital Resources The parent company's liquidity is primarily sourced from subsidiary dividends, which are sufficient to cover recurring cash outflows like shareholder dividends and operating expenses. In 2023, up to $924.9 million in ordinary dividends can be received from subsidiaries without prior regulatory approval. The company has a long history of dividend payments, having paid them for 82 consecutive years and increased them for the past 42 years. The consolidated debt-to-equity ratio was 26.9% at quarter-end - The company can receive up to $924.9 million in ordinary dividends from its subsidiaries in 2023 without prior regulatory approval, of which $509.2 million has been received through Q3139 - The company has paid a cash dividend for 82 consecutive years and has raised the annual payout for the last 42 years141 - The consolidated debt-to-equity ratio was 26.9% as of September 30, 2023140 Quantitative and Qualitative Disclosure About Market Risk The company's primary market risks are identified as interest rate risk from its fixed-income investments and equity price risk from its equity security holdings. The report states that there have been no material changes to these market risk exposures compared to those disclosed in the 2022 Annual Report on Form 10-K - Old Republic's primary market risks are interest rate risk and equity price risk161 - Market risk exposures at September 30, 2023, have not materially changed from those identified in the Company's 2022 Annual Report on Form 10-K162 Controls and Procedures Based on an evaluation as of the end of the reporting period, the company's principal executive officer and principal financial officer concluded that the disclosure controls and procedures are effective. Additionally, there were no changes in internal control over financial reporting during the third quarter of 2023 that have materially affected, or are reasonably likely to materially affect, these controls - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of the end of the quarter163 - No material changes to the Company's internal control over financial reporting occurred during the third quarter of 2023164 PART II - OTHER INFORMATION Item 1 - Legal Proceedings The company reports that as of September 30, 2023, there were no material non-claim related legal proceedings against the company or its subsidiaries. Routine legal proceedings related to insurance claims and contracts arise in the normal course of business - As of September 30, 2023, the Company had no material non-claim litigation exposures in its consolidated business50168 Item 1A - Risk Factors The company states that there have been no material changes to the risk factors previously disclosed in its 2022 Annual Report on Form 10-K - There have been no material changes with respect to the risk factors disclosed in the Company's 2022 Annual report on Form 10-K169 Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's share repurchase activity during the third quarter of 2023. A total of 4,770,788 shares were repurchased at an average price of $26.05 per share. These repurchases were part of a $450 million program announced in May 2023 Share Repurchase Activity | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | July 2023 | 3,413,340 | $25.62 | | August 2023 | 742,500 | $27.17 | | September 2023 | 614,948 | $27.07 | | Total Q3 2023 | 4,770,788 | $26.05 | - On May 12, 2023, the Company announced a share repurchase program authorizing up to an additional $450 million in shares. As of September 30, 2023, $139.2 million remained available under this authorization170 Item 5 - Other Information The company reports that during the third quarter of 2023, none of its directors or officers adopted or terminated a Rule 10b5-1 trading arrangement for the purchase or sale of the company's securities - During the quarter ended September 30, 2023, none of the Company's directors or officers adopted or terminated a Rule 10b5-1 trading arrangement171 Item 6 - Exhibits This section lists the exhibits filed with the Form 10-Q. The exhibits include certifications from the Chief Executive Officer and Chief Financial Officer as required by the Sarbanes-Oxley Act of 2002, as well as XBRL data files - Exhibits filed include CEO and CFO certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act173