Old Republic International (US:ORI)2024-02-28 20:49General Insurance Segment Performance - General Insurance segment revenues increased to $4,744.3 million in 2023, up 9.9% from $4,315.6 million in 2022[14] - General Insurance segment pretax income increased to $787.8 million in 2023, up 14.2% from $689.8 million in 2022[14] - General Insurance segment combined ratio improved to 90.2% in 2023 from 89.5% in 2022[20] - General Insurance net premiums earned increased by 8.2% in 2023, driven by premium rate increases, high renewal retention ratios, and new business production[35] - Commercial auto accounted for 41.0% of General Insurance's consolidated net premiums earned in 2023, while property lines grew to 11.5% of total premiums[34] - The reported loss ratio for General Insurance remained consistent at 62.0% in 2023, with favorable development in workers' compensation and commercial auto reserves[39] - Approximately 94% of General Insurance premiums are produced through independent agency or brokerage channels, with the remaining 6% obtained through direct production facilities[31] - General Insurance net premiums earned increased by 8.2% to $4,119.2 million in 2023, driven by premium rate increases, high renewal retention ratios, and new business production[204][205] - General Insurance net investment income rose by 29.3% to $462.7 million in 2023, driven by higher investment yields and a larger invested asset base[204][205] - Consolidated underwriting ratio for General Insurance improved to 90.2% in 2023, compared to 89.5% in 2022, reflecting strong profitability[205] - General Insurance segment pretax operating income increased by 14.2% to $787.8 million in 2023, driven by premium growth and investment income[205] - General Insurance loss ratio remained stable at 62.0% in 2023, with favorable development in workers' compensation and commercial auto offset by unfavorable trends in general liability[206] - General Insurance combined ratio target remains between 90% and 95% over a full underwriting cycle, reflecting the company's long-term profitability goals[207] Title Insurance Segment Performance - Title Insurance segment revenues decreased to $2,620.6 million in 2023, down 32.5% from $3,882.7 million in 2022[14] - Title Insurance segment pretax income decreased to $133.5 million in 2023, down 56.8% from $308.8 million in 2022[14] - Title Insurance segment combined ratio worsened to 97.1% in 2023 from 93.2% in 2022[20] - Title Insurance net premiums and fees earned decreased by 33.2% in 2023, driven by a drop in mortgage originations due to higher interest rates[63] - Commercial premiums represented 22% of Title Insurance premiums earned in 2023, with both direct and agency-produced revenues declining[63] - Title Insurance loss ratios remained low at 1.9% in 2023, with favorable trends in claims frequency and severity[65] - Title Insurance's premium and fee revenue is closely tied to real estate market activity, with seasonal fluctuations and impacts from mortgage interest rates[62] - 79.0% of Title Insurance premiums and fees in 2023 were accounted for by policies issued by independent title agents[88] - Title Insurance net premiums earned decreased by 33.2% to $2,562.8 million in 2023, reflecting a significant decline compared to 2022[204] - Title Insurance underwriting and related services income decreased by 71.1% to $75.4 million in 2023, reflecting significant challenges in this segment[204] - The Title Insurance segment generated $2.0 billion or 79.0% of its premium and fee income from independent title agents in 2023, making it vulnerable to shifts in agent preferences[153] - The Title Insurance segment faces risks from independent title agents' actions, including potential policy issuance beyond contractual limits or failure to adhere to underwriting standards[154] - Florida accounted for approximately 24% of the Title Insurance segment's total consolidated premium and related fee income in 2023[157] - The Title Insurance segment's commercial policies may have exposure extending into the hundreds of millions of dollars, with no reinsurance obtained for large commercial policies[158] RFIG Run-off Segment Performance - RFIG Run-off segment revenues declined to $22.7 million in 2023, down 24.3% from $30.0 million in 2022[14] - RFIG Run-off mortgage insurance business had total statutory capital of $169.5 million, including a contingency reserve of $38.4 million as of December 31, 2023[72] - RFIG Run-off's reported loss ratio improved to (66.9)% in 2023 from (75.5)% in 2022 and (5.3)% in 2021, driven by favorable reserve development[79] - The RFIG Run-off segment's loss reserves are based on reported defaults and estimates, subject to significant uncertainty due to economic conditions[159][160][161] - The RFIG Run-off segment's actual losses could exceed established reserves, potentially requiring substantial increases in reserves[162] - The company reached a definitive agreement to sell the RFIG Run-off mortgage insurance business to Arch U.S. MI Holdings Inc., expected to close in the first half of 2024[163] Consolidated Financial Performance - Consolidated revenues decreased to $7,258.3 million in 2023, down 10.2% from $8,083.7 million in 2022[14] - Consolidated pretax income decreased to $747.4 million in 2023, down 12.8% from $857.4 million in 2022[14] - Consolidated net premiums and fees earned decreased by 12.6% to $6,707.7 million in 2023, driven by a decline in Title Insurance, partially offset by growth in General Insurance[200] - Net investment income increased by 25.8% to $578.3 million in 2023, driven by higher investment yields[200] - The consolidated combined ratio for 2023 was 92.6%, with favorable loss reserve development improving the ratio by 4.6 percentage points[200] - Total capital returned to shareholders in 2023 was $806 million, comprising $276 million in dividends and $530 million in share repurchases[200] - Book value per share grew by 15.3% to $23.31 in 2023, inclusive of dividends[200] - Pretax income excluding investment losses (pretax operating income) was $938.4 million in 2023, with Title Insurance pretax operating income declining and General Insurance pretax operating income increasing[199] - Net income excluding investment gains (losses) was $749.5 million in 2023, compared to $845.1 million in 2022[197] - Diluted net income per share excluding investment gains (losses) was $2.63 in 2023, a 5.7% decrease from $2.79 in 2022[203] - Total operating revenues decreased by 10.1% to $7,449.3 million in 2023, compared to $8,284.9 million in 2022[203] - Loss and loss adjustment expenses increased by 6.4% to $2,596.6 million in 2023, while sales and general expenses decreased by 18.6% to $3,843.6 million[203] - Consolidated net investment income increased by 25.8% to $578.3 million in 2023, driven by strong performance in General Insurance and Title Insurance[204] Investment Portfolio and Income - The company's investment portfolio is focused on investment grade, publicly traded, fixed income securities and dividend paying, large capitalization, highly liquid equity securities[91] - Net investment income for the years ended December 31, 2023, 2022, and 2021 was $578.3 million, $459.5 million, and $434.3 million, respectively[114] - The company's investment portfolio as of December 31, 2023, was allocated 83% to fixed income and short-term investments, and 17% to equity securities[114] - Old Republic's investment portfolio is subject to market-wide risks, including inflation, regulatory changes, and economic outlooks, which could impact future valuations[115] - The company's investment portfolio includes significant exposure to electric utilities and natural gas industries, which could be affected by climate change, leading to potential investment losses[141] Capital Management and Shareholder Returns - Dividends declared to the holding company by its subsidiaries for the fiscal years ended December 31, 2023, 2022, and 2021 amounted to $673.3 million, $614.6 million, and $566.7 million, respectively[121] - The company's insurance subsidiaries are generally prohibited from paying dividends to the holding company in excess of 10% of statutory surplus or a portion of statutory net income without prior regulatory approval[121] - The company repurchased 2,064,666 shares at an average price of $26.87 per share in Q4 2023, completing its $450 million share repurchase program[186] - The company's five-year total market return for common stock outperformed the S&P 500 and Peer Group, reaching $212.37 in 2023 from a $100 investment in 2018[183] Risk Management and Reserves - The Company's property and liability insurance subsidiaries establish loss reserves to cover reported claims, IBNR claims, and direct and indirect costs[42] - Old Republic's exposure to A&E claims is difficult to quantify due to long reporting delays and uncertainties in litigation history[51] - Old Republic's consolidated favorable development of reserves for losses and loss adjustment expenses was $305.8 million, $282.6 million, and $210.6 million for the years ended December 31, 2023, 2022, and 2021, respectively[111] - Old Republic's loss reserves are based on estimates and could be adversely affected if actual insured losses exceed these estimates[109] - The company depends on reinsurance to manage risks, but the availability and cost of reinsurance are subject to market conditions beyond its control[148][150] Regulatory and Compliance - The company is subject to evolving U.S. privacy and cybersecurity laws and regulations, including the NY DFS Cybersecurity Regulation amendments adopted in 2023[99] - The company is subject to extensive governmental regulations, and non-compliance could result in penalties, fines, or suspensions, adversely affecting its financial condition[135][137] Cybersecurity and Technology - Cybersecurity incidents and technology breaches could disrupt operations, result in financial losses, and expose the company to additional liabilities[123][124] - The company's cybersecurity strategy is overseen by a Chief Information Security Officer with 26 years of experience, supported by enterprise-wide monitoring and third-party assessments[168][172] - The company's reliance on IT systems is critical, and failure to keep pace with technological advancements could impair its competitive position and increase costs[134] Competitive Landscape - The company faces intense competition from specialty insurance companies, underwriting agencies, intermediaries, and larger financial services companies, which could reduce its market share and premium revenues[129] - The company's growth strategy includes investments in new underwriting subsidiaries, but these ventures may not meet growth and profitability targets, risking significant capital losses[130][132] Climate Change and Catastrophic Risks - Climate change could impact the company's liability insurance business, particularly in workers' compensation and vehicle liability, with potential long-term effects on pricing and underwriting[140] - The company's General Insurance segment is exposed to catastrophic losses from natural disasters and terrorism, with potential non-reinsured losses exceeding coverage limits[144][146] Life and Accident Insurance - The company's life and accident insurance business generated net premium revenues of $9.1 million in 2023, down from $9.6 million in 2022 and $11.0 million in 2021[81] - Term life insurance premiums earned were $3.8 million in 2023, compared to $3.9 million in 2022 and $4.8 million in 2021, with production terminated as of year-end 2004[81] Geographic Distribution of Premiums - Consolidated direct premiums written in the United States were distributed as follows in 2023: Northeast 11.3%, Southeast 22.2%, Western 14.6%, Southwest 13.0%, and foreign (principally Canada) 2.7%[85] Human Resources and Talent - The company has approximately 9,200 associates, with significant competition for talent in the insurance industry[102] Corporate Structure and Operations - The company's operations are divided into three segments: General Insurance, Title Insurance, and RFIG Run-off, with a small life and accident insurance business included in Corporate & Other[188] - The company's common stock is traded on the NYSE under the symbol "ORI," with 1,924 registered holders as of January 31, 2024[180]