Old Republic International (US:ORI)2024-01-25 22:19Financial Data and Key Metrics Changes - The consolidated combined ratio for Q4 2023 was 93.3%, with a full-year combined ratio of 92.6%, up from 91% in 2022 [7] - Consolidated pre-tax operating income for Q4 was $237 million, totaling $938 million for the year, down from $1.59 billion in 2022 [7] - Net operating income was reported at $190 million for the quarter and $750 million for the year, with year-over-year comparisons showing $0.69 versus $0.80 for the quarter and $2.63 versus $2.79 for the full year [12] Business Line Data and Key Metrics Changes - General Insurance achieved a combined ratio of 92% for Q4 and 90.2% for the year, with pre-tax operating income of $195 million for the quarter and $788 million for the year, a 14% increase from $690 million in 2022 [8][15] - Title Insurance reported a combined ratio of 95.5% for Q4, with pre-tax operating income of $44 million, down from $45 million in Q4 2022. The full-year combined ratio was 97.1%, compared to 93.2% in 2022, with pre-tax operating income of $134 million, down from $309 million in 2022 [9][26] Market Data and Key Metrics Changes - The valuation of fixed income securities increased by approximately $445 million due to interest rates, while the stock portfolio saw an increase of about $110 million, ending the year with an unrealized gain of over $1.1 billion [13] - The average reinvestment rate on corporate bonds was 5.35%, with the bond portfolio book yield now nearly 4%, up from 3.3% at the end of the previous year [19] Company Strategy and Development Direction - The company continues to focus on specialization and diversification across Title and P&C Insurance, investing in new underwriting subsidiaries, people, and technology for long-term growth [10] - Strategic planning includes modernizing IT and optimizing processes to improve efficiency, allowing the company to capitalize on improving market conditions [27] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism for continued profitable growth in General Insurance, while acknowledging challenges in Title Insurance due to mortgage interest rates and the real estate market [32] - The company aims to maintain a conservative approach to reserving and expects favorable prior year loss development to continue, although not at the same robust levels as in previous years [46][49] Other Important Information - The company returned over $805 million to shareholders through dividends and share repurchases in 2023 [14][31] - The sale of the Mortgage Insurance operations is expected to close in the first half of 2024, with the last dividend from that unit being $25 million [20][59] Q&A Session Summary Question: Insights on severity in commercial auto and rate actions - Management noted that severity in commercial auto has increased, prompting a response to raise the accident year loss ratio. The current accident year loss ratio ended at 76.2%, stable compared to 76.4% in 2022 [34][36] Question: Targeted combined ratio outlook - Management indicated that while favorable prior year development has been robust, it is not sustainable. They expect the accident year loss ratio to trend lower over time, but current levels remain higher than desired [44][46] Question: Technology investments amid declining revenues - Management emphasized the importance of continuing technology investments for long-term management, despite slower revenues, to enhance efficiency and prepare for future challenges [52] Question: Explanation of loss on runoff business sale - Management explained that the loss was due to the diminishing level of premiums and reserves in the runoff business, making it difficult to generate revenue. The decision to sell was made to avoid future earnings drag [59][61]