Old Republic International (US:ORI)2024-05-03 17:47PART I FINANCIAL INFORMATION This part covers the company's consolidated financial statements, notes, management's analysis of financial position and operations, market risk disclosures, and internal controls Consolidated Financial Statements The consolidated financial statements for the quarter ended March 31, 2024, show a significant increase in net income to $316.7 million from $199.8 million in the prior-year quarter, driven by higher total revenues. Total assets grew to $27.06 billion from $26.50 billion at year-end 2023. However, comprehensive income decreased to $243.7 million from $339.7 million year-over-year, primarily due to unrealized losses on investments. Cash flow from operations remained stable, while financing activities saw a net inflow from a new debt issuance, partially offset by share repurchases and dividends Consolidated Balance Sheet Highlights ($ in Millions) | Account | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Assets | $27,064.3 | $26,501.4 | | Total Investments | $16,324.5 | $15,867.7 | | Total Liabilities | $20,663.3 | $20,090.7 | | Total Common Shareholders' Equity | $6,400.9 | $6,410.7 | Consolidated Income Statement Highlights ($ in Millions, Except Share Data) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Total Revenues | $2,015.9 | $1,758.7 | | Net Premiums Earned | $1,574.6 | $1,496.2 | | Net Investment Income | $164.1 | $137.8 | | Net Income | $316.7 | $199.8 | | Diluted EPS | $1.15 | $0.68 | - Comprehensive income for Q1 2024 was $243.7 million, a decrease from $339.7 million in Q1 2023, primarily driven by a net unrealized loss on investments of $73.0 million in Q1 2024, compared to a net unrealized gain of $139.8 million in the prior-year period10 Consolidated Cash Flow Highlights ($ in Millions) | Cash Flow Activity | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $160.4 | $156.6 | | Net Cash from Investing Activities | ($355.2) | $49.3 | | Net Cash from Financing Activities | $128.4 | ($193.3) | Notes to Consolidated Financial Statements The notes detail the company's accounting policies and provide further information on key financial statement items. A significant event is the pending sale of the RMIC Companies, Inc. (RMICC) for approximately $140 million, which is now classified as held-for-sale. The investment portfolio remains concentrated in available-for-sale fixed income securities, with fair value changes impacting equity. Loss reserves saw favorable development, primarily from General Insurance. The company issued $400 million in new senior notes and was active in its share repurchase program, buying back $194.4 million in shares during the quarter - The company operates through two main segments: General Insurance (property and liability) and Title Insurance, with RFIG Run-off business results now included in the Corporate & Other category1561 - A definitive agreement was reached on November 11, 2023, to sell RMIC Companies, Inc. (RMICC) to Arch Capital Group Ltd. for approximately $140 million, with the transaction expected to close in Q2 2024 and accounted for as held-for-sale3435 - Favorable prior-year loss reserve development in Q1 2024 was primarily driven by workers' compensation and commercial auto lines in the General Insurance segment, and from the 2019-2021 years in the Title Insurance segment4950 - In Q1 2024, the company issued $400.0 million of 5.750% Senior Notes due 2034, increasing total debt to $1,987.6 million56 - Under its share repurchase programs, the company repurchased 6.6 million shares for $194.4 million in Q1 2024, and a new $1.1 billion share repurchase program was authorized in March 20245859 Management Analysis of Financial Position and Results of Operations Management's analysis highlights a 3.9% increase in pretax operating income to $231.5 million, driven by strong performance in the General Insurance segment which offset a decline in Title Insurance. Consolidated net premiums and fees grew 5.6%, while the combined ratio increased to 94.3% from 92.7% year-over-year. Net investment income rose 19.1% due to higher yields. The financial position remains strong, with total assets increasing and a continued focus on high-quality investments. The company returned $264 million to shareholders through dividends and share repurchases during the quarter Executive Summary This section provides an overview of the company's financial performance, highlighting key drivers such as increased pretax operating income, growth in premiums and investment income, and capital returns to shareholders Overall Results Summary ($ in Millions) | Metric | Q1 2024 | Q1 2023 | % Change | | :--- | :--- | :--- | :--- | | Pretax income excluding investment gains | $231.5 | $222.9 | 3.9% | | Net income excluding investment gains | $184.7 | $179.2 | 3.1% | | Net income per diluted share excluding investment gains | $0.67 | $0.61 | 9.8% | - Key performance drivers for Q1 2024 include a 5.6% increase in consolidated net premiums and fees, a 19.1% rise in net investment income, and a total of $264 million in capital returned to shareholders via dividends and buybacks79 - Book value per share increased 2.2% to $23.83 at March 31, 2024, from $23.31 at December 31, 202378 Results of Operations This section details the company's consolidated income sources and combined ratio, showing segment-wise performance and factors influencing profitability Sources of Consolidated Income ($ in Millions) | Segment | Q1 2024 Pretax Operating Income | Q1 2023 Pretax Operating Income | % Change | | :--- | :--- | :--- | :--- | | General Insurance | $220.4 | $193.2 | 14.1% | | Title Insurance | $2.3 | $17.4 | (86.4)% | | Corporate & Other | $8.8 | $12.3 | (28.6)% | | Consolidated | $231.5 | $222.9 | 3.9% | Consolidated Combined Ratio | Ratio Component | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Loss Ratio | 42.5% | 38.8% | | Expense Ratio | 51.8% | 53.9% | | Combined Ratio | 94.3% | 92.7% | - The consolidated loss ratio increased, primarily due to a change in business mix with a lower contribution from Title Insurance (which has a lower loss ratio) and less favorable prior year reserve development compared to Q1 2023109110 Segment Overview This section provides a detailed analysis of the performance of the General Insurance and Title Insurance segments, including their respective premiums, operating income, and combined ratios General Insurance Segment Highlights | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net Premiums Earned | $1,091.6M | $965.1M | | Pretax Operating Income | $220.4M | $193.2M | | Combined Ratio | 90.3% | 89.3% | - General Insurance premium growth of 13.1% was driven by rate increases, high retention, and new business, particularly in commercial auto, property, and general liability lines86122 Title Insurance Segment Highlights | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net Premiums & Fees Earned | $545.4M | $583.2M | | Pretax Operating Income | $2.3M | $17.4M | | Combined Ratio | 102.5% | 99.3% | - Title Insurance revenues declined 6.5% due to a drop in mortgage originations from higher interest rates, leading to a significant decrease in profitability and an underwriting loss, as indicated by the 102.5% combined ratio91127 Financial Position This section describes the company's balance sheet, investment portfolio allocation, capitalization, debt-to-equity ratio, and dividend policy - The consolidated investment portfolio as of March 31, 2024, was allocated approximately 84% to fixed income and short-term investments and 16% to equity securities, with a focus on high-quality, marketable securities98135 - Total capitalization stood at $8.39 billion at March 31, 2024, with a debt-to-equity ratio of 31.1%, temporarily elevated due to a recent $400 million senior note issuance intended to retire maturing debt later in 2024148149 - The company has paid a cash dividend for 83 consecutive years and has increased it for the past 43 years150 Quantitative and Qualitative Disclosure About Market Risk The company's primary market risks are interest rate risk from its fixed income portfolio and equity price risk from its equity investments. There have been no material changes in these market risk exposures since the 2023 Annual Report on Form 10-K - The company's main market risks are interest rate risk and equity price risk, with no material foreign exchange or commodity risk166 - Market risk exposures as of March 31, 2024, have not changed materially from those disclosed in the 2023 Form 10-K167 Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of March 31, 2024. There were no material changes to the internal control over financial reporting during the first quarter - The principal executive and financial officers concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period168 - No changes in internal control over financial reporting occurred during Q1 2024 that have materially affected, or are reasonably likely to materially affect, the company's internal controls169 PART II OTHER INFORMATION This part addresses legal proceedings, risk factors, equity security sales, other disclosures, and a list of exhibits filed with the report Legal Proceedings The company reports no material non-claim related legal proceedings as of March 31, 2024. Legal proceedings that do arise are typically in the normal course of business and pertain to claim matters - As of March 31, 2024, the Company had no material non-claim litigation exposures in its consolidated business60173 Risk Factors There have been no material changes to the risk factors previously disclosed in the company's 2023 Annual Report on Form 10-K - No material changes have occurred with respect to the risk factors disclosed in the Company's 2023 Annual Report on Form 10-K174 Unregistered Sales of Equity Securities and Use of Proceeds During the first quarter of 2024, the company completed its $450 million share repurchase program and initiated a new $1.1 billion program. A total of 6.68 million shares were repurchased for approximately $192.5 million during the quarter Share Repurchase Activity for Q1 2024 | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | January 2024 | 234,397 | $28.05 | | February 2024 | 2,701,428 | $28.05 | | March 2024 | 3,742,043 | $29.46 | | Total Q1 2024 | 6,677,868 | $28.84 | - The company completed its $450 million share repurchase authorization from May 2023 and began a new $1.1 billion authorization announced on March 1, 2024175 Other Information During the first quarter of 2024, no directors or officers adopted or terminated a Rule 10b5-1 trading arrangement for the purchase or sale of the company's securities - No directors or officers adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement during the quarter ended March 31, 2024176 Exhibits This section lists the exhibits filed with the Form 10-Q, including supplemental indentures, forms of award agreements for the stock incentive plan, and officer certifications as required by the Sarbanes-Oxley Act - Exhibits filed with the report include an Eighth Supplemental Indenture, forms of award agreements under the 2022 Stock Incentive Plan, and CEO/CFO certifications pursuant to Sarbanes-Oxley Sections 302 and 906177178