Karol Chmiel

Karol Chmiel from Citizens followed up on new business momentum, asking for specific territories outside of Florida showing the most growth, and inquired if the $5 million favorable reserve development was primarily linked to last year's reserve strengthening efforts.

Answer

CEO Ernie Garateix identified Virginia, Hawaii, and New York (following a mid-year 9% rate increase) as key growth states outside Florida, along with California on an E&S basis. CFO Kirk Lusk confirmed that the favorable reserve development was partially due to last year's strengthening and ongoing positive trends in the underlying portfolio, affirming adequate reserving.

Karol Chmiel inquired about the specific territories driving new business momentum outside of Florida for Heritage Insurance Holdings and sought clarification on the favorable development of $5 million, particularly if it was linked to prior year's reserve strengthening.

Answer

CEO Ernie Garateix identified Virginia, Hawaii, and New York as key states contributing to new business growth outside Florida, also mentioning California on an E&S basis. CFO Kirk Lusk confirmed that the favorable development was partially due to prior reserve strengthening and the underlying portfolio's performance, asserting that the company is adequately reserved.

Karol Chmiel from Citizens Capital Markets and Advisory asked for a comparison of the current quarter's catastrophe and weather losses to previous years and sought details on the favorable prior period reserve development.

Answer

CFO Kirk Lusk attributed the year-over-year decrease in non-catastrophe weather losses to a better-underwritten portfolio with newer roofs, which is less susceptible to severe convective storms. Regarding reserve development, Lusk confirmed that the current favorable trend is partly a reflection of the reserve strengthening actions taken in the prior year and that the company is pleased with the current positive development.

Karol Chmiel asked for a better understanding of the market dynamics in Florida and other states, questioning why premiums were down while policies-in-force (PIVs) were also decreasing and total insured value (TIV) was flat.

Answer

CFO Kirk Lusk explained that the premium trend reflects less substantial rate increases compared to the past. He also noted some competitive pressure in the commercial markets. Lusk reiterated that as the company continues to reopen territories that were previously closed, they anticipate growth will accelerate in the second half of the year.

Karol Chmiel of B. Riley Securities inquired about the profile of the California wildfire claims, asking for a breakdown between total loss and smoke damage, and the distribution across the Eaton and Palisades fires. He also requested more detail on the prior period development for the quarter.

Answer

CEO Ernesto Garateix stated that there were 15 total loss claims and approximately 20 smoke damage claims, with most originating from the Palisades fire. Executive Kirk Lusk explained that the prior period development was primarily driven by the final stages of winding down claims related to Hurricane Irma.

Karol Chmiel from Citizens JMP inquired about the commercial auto business, asking if Old Republic is experiencing the same adverse frequency and severity trends as the broader industry and what differentiates its book. She also asked for clarification on capital management priorities, specifically whether capital would be increasingly allocated to premium growth over share buybacks.

Answer

Executive Craig Smiddy acknowledged that Old Republic is not immune to industry-wide loss trends in commercial auto but emphasized that the company's specialized claims, conservative reserving practices, and distribution model are key differentiators. He noted that ORI reacted much sooner than peers to rising severity trends in 2018-2019, which explains its continued favorable reserve development. On capital management, Smiddy reiterated that organic growth is the first priority. However, because strong retained earnings consistently replenish capital, the company will continue to evaluate returning excess capital to shareholders through buybacks or special dividends if sufficient growth or M&A opportunities are not present.