Old Republic International - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 operating EPS was $0.81, above Wall Street consensus of ~$0.74, and GAAP diluted EPS was $0.98; total revenues were $2.114B, also ahead of consensus ~$2.034B. Consolidated combined ratio improved year-over-year to 93.7% and pretax operating income rose to $252.7M. EPS and revenue consensus values are from S&P Global.*
• Specialty Insurance delivered profitable growth: net premiums earned +13% YoY to $1.234B, combined ratio 89.8%, pretax operating income $260.1M; Title Insurance posted 10.9% revenue growth with combined ratio modestly better at 102.1%.
• Favorable prior-year reserve development was 2.6 points (vs 2.3 points last year), with notable strength in workers’ comp, commercial auto, and property; management reduced its estimate for L.A. wildfire losses to “less than $10M” from $10–$15M.
• Capital returns continued but normalized post-special dividend: $93M in Q1 (dividends + buybacks), book value per share rose to $24.19 (+7.2% since year-end inclusive of dividends). Management has just over $200M remaining under the buyback authorization, balancing M&A/new underwriting subsidiaries with shareholder returns.

What Went Well and What Went Wrong

What Went Well

• Specialty Insurance profitable growth: pretax operating income $260.1M and combined ratio 89.8% on 13% net premiums earned growth; strong rate increases in commercial auto and general liability, and E&S direct premiums written +13%. “We continue on our journey of profitable growth within Specialty Insurance” — Craig Smiddy.
• Title Insurance revenue mix improved: premiums/fees +10.9% with commercial premiums up 27% (now ~24% of earned vs 21% last year); investment income up ~7%, combined ratio edged down to 102.1%. “By leveraging Qualia’s expertise… we will equip our… agents with cutting-edge tools” — Carolyn Monroe (Qualia partnership).
• Loss reserve favorability and investment income: 2.6 points favorable development (vs 2.3 last year) and net investment income +4% on higher bond yields; average reinvestment rate 5.1%, bond book yield 4.6%.

What Went Wrong

• Corporate & Other turned to a pretax operating loss (-$11.8M) on lower invested asset base post capital returns and higher personnel costs (including executive comp tied to performance); management expects corporate bottom-line losses to continue through 2025.
• Title expense ratio still elevated at 99.4% (though improving), with loss ratio up to 2.7% as favorable prior-year reserve development moderated; management expects gradual improvement as volumes recover and tech savings flow through.
• Macro/tariff headwinds: Canada travel accident and trucking volumes declined; management highlighted potential tariff impacts on auto parts/medical inputs and is monitoring severity/frequency trends closely.

Transcript

Speaker 6

Ladies and gentlemen, thank you for standing by. My name is Abby, and I will be your conference operator today. At this time, I would like to welcome everyone to the Old Republic International First Quarter 2025 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during that time, simply press Star, followed by the number one on your telephone keypad. If you would like to withdraw your question, press Star one a second time. Thank you. I would now like to turn the conference over to Joe Calabrese with the Financial Relations Board. You may begin.

Speaker 1

Thank you. Good afternoon, everyone, and thank you for joining us for the Old Republic International Corporation Conference Call to discuss first quarter 2025 results. This morning, we distributed a copy of the press release and posted a separate financial supplement. Both of the documents are available on Old Republic's website at www.oldrepublic.com. Please be advised that this call may involve forward-looking statements as discussed in the press release and the financial supplement dated April 24, 2025. Risks associated with these statements can be found in the company's latest FTC filings. Presenting on today's conference call will be Craig Smiddy, President and CEO, Frank Sodaro, Chief Financial Officer, and Carolyn Monroe, President and CEO of Old Republic's National Title Insurance Group. Management will make some opening remarks, and then we'll open the line for your questions. At this time, I would like to turn the call over to Craig.

Please go ahead, sir.

Speaker 0

Okay. Thank you very much, and good afternoon, and welcome again to Old Republic's First Quarter 2025 Earnings Call. Old Republic started the new year much like we finished last year with the continuation of an upbeat story of growth and profitability. During the first quarter, we produced $252.7 million of consolidated pre-tax operating income. That's up from $231.5 million in the first quarter of 2024. Our consolidated combined ratio was 93.7, and that compares to 94.3 in the first quarter last year. Specialty insurance grew net premiums earned by 13% in the first quarter and produced $260 million of pre-tax operating income. That's up from $220 million last year. The specialty insurance combined ratio was 89.8 in the quarter compared to 90.3 last year.

In title, despite the continuation of higher mortgage interest rates and a tight real estate market, the title insurance folks grew premiums and fees by 11% in the first quarter and produced $4.3 million of pre-tax operating income, which is up $2.3 million from last year. The title insurance combined ratio was 102.1 in the quarter compared to 102.5 last year. Our conservative reserving practices that we talk about continue to produce favorable prior-year loss reserve development in both specialty insurance and title insurance, and Frank will provide a little more detail on that later. Our balance sheet remains strong even as we've returned capital to shareholders through both dividends and share repurchases. Here, too, Frank will provide a little more color around that. That all happens while we continue to return excess capital to shareholders and invest in new specialty underwriting subsidiaries, technology, and talent.

I will now turn the discussion over to Frank for some more color and details around those comments, and then Frank will turn things back to me to cover specialty insurance, and that will be followed by Carolyn, who will discuss title, and then we will open up for some conversation and Q&A. Frank, with that, I will hand it over to you.

Speaker 4

All right. Thank you, Craig, and good afternoon, everyone. This morning, we reported net operating income of $202 million for the quarter compared to $185 million last year. On a per-share basis, comparable year-over-year results were $0.81 compared to $0.67, a 21% improvement. Net investment income increased 4% as a result of higher yields on the bond portfolio, partially offset by a lower invested asset base from returning excess capital. Our average reinvestment rate on corporate bonds during the quarter was 5.1%. The total bond portfolio book yield now stands at 4.6% compared to 4.5% at the end of last year. The value of our total investment portfolio increased by nearly $200 million. Our equity portfolio, which is focused on high-quality value stocks and makes up 16% of the total investment portfolio, was up nearly $60 million in the quarter.

Turning now to loss reserves, both specialty insurance and title insurance recognized favorable development in the quarter, leading to a benefit in the consolidated loss ratio of 2.6 percentage points, with no significant unfavorable development to speak of. This compares to 2.3 percentage points of favorable development last year. I'll now go a little deeper into specialty insurance coverages. Workers' Comp continued to have strong favorable development, albeit less than last year. Both commercial auto and property experienced favorable development that was considerably higher than last year, and general liability had a very small amount of unfavorable development compared to a more meaningful level of unfavorable development last year. We ended the quarter with book value per share of $24.19, which, inclusive of the regular dividend, equated to an increase of just over 7%, and that resulted primarily from our strong operating earnings and higher investment valuations.

In the quarter, we paid approximately $500 million for the special dividend declared late last year. In addition, we paid $68 million in regular dividends and repurchased $25 million worth of our shares. We did not repurchase additional shares since the end of the quarter, so that leaves us with just over $200 million remaining in our current repurchase program. I'll now turn the call back over to Craig for a discussion of specialty insurance.

Speaker 0

Okay. Thanks for that, Frank. Specialty insurance net premium written was up 10% in the first quarter, and that came from strong renewal retention ratios, rate increases on most of the lines of coverage, solid new business writings, and increasing premium production in our new specialty underwriting subsidiaries. Our specialty growth continues to expand our E&S presence with seven of our underwriting subsidiaries utilizing Old Republic's E&S platform. Our E&S direct premiums written were up 13% this quarter. As mentioned in my opening remarks, in the first quarter, specialty insurance pre-tax operating income was $260 million, and the combined ratio was 89.8. Given these top-line and bottom-line results, we continue on our journey of profitable growth within specialty insurance.

Getting a little more into the details, the loss ratio for the first quarter was 61.7%, including 3.3 percentage points of favorable prior-year loss reserve development, compared to 62.7% last year that included 2.5 percentage points of favorable development. The expense ratio was 28.1% in the first quarter compared to 27.6% last year, right in line with expectations. Turning to some comments on property catastrophe losses that have impacted the industry as a result of the Los Angeles wildfires. During our last quarter's earnings call, you might recall that we indicated we had estimated our ultimate Los Angeles wildfire losses to be between $10 million and $15 million, and currently, we've reduced that estimate to less than $10 million. Now, to give you some details on commercial auto and workers' compensation, our two largest lines of coverage.

Commercial auto net premiums written grew 9% in the first quarter, while the loss ratio came in at 70.3 compared to 71.9 last year. Rate increases were approximately 11% and consistent with comments we've made in previous quarters. That is commensurate with the loss trends that we're observing in commercial auto. Workers' compensation net premiums written were 3% higher in the first quarter, while the loss ratio came in at 58.7 compared to 47 last year. Loss frequency trend continues to decline, while the loss severity trend remains stable. Given higher wage trend within payroll, which is, of course, our rating base, declining loss frequency trend, stable loss severity trend, combined with rate decreases that are in the low single digits, we think our rate levels in this line of coverage remain adequate.

We expect solid growth and profitability in specialty insurance to continue throughout 2025, which we think reflects the success of our strategy and our operational excellence initiatives. We also expect to continue to see growing contributions from our newest specialty underwriting subsidiaries. That will end it for specialty insurance for now, and I'll hand it over to you, Carolyn, to give us some color and comments on title insurance.

Speaker 3

Thank you, Craig. Title insurance reported premium and fee revenue for the quarter of $605 million. This represents an increase of just under 11% from the first quarter of 2024. While we are pleased with our performance, conditions in the real estate and mortgage industries continue to be less than favorable in the seasonally weak first quarter. Our directly produced premium and fees were up 6% from the first quarter of last year, while agency-produced premiums were up 12%. Commercial premiums increased 27% this quarter compared to first quarter 2024. Commercial premiums were 24% of our earned premiums this quarter compared to 21% in the first quarter of last year. Agency premiums made up 78% of our revenue during the quarter, up from 77% during first quarter of last year. Investment income was also up this quarter around 7% compared to first quarter of 2024, reflecting higher investment yields earned.

Our overall loss ratio increased to 2.7% this quarter compared to 2.2% in the first quarter of 2024. Although prior policy years continued to develop favorably, the amount of favorable development in first quarter 2025 was less than the first quarter of 2024. Our pre-tax operating income increased to $4 million this quarter compared to $2 million in the first quarter of last year, and our combined ratio of 102.1% is slightly lower than the first quarter of 2024. Our elevated combined ratio continues to reflect market conditions, which we are managing through. Our expense ratio improved to 99.4% from 100.3% in the first quarter of 2024, an improvement of nearly 1%. Technology continues to be paramount to ensuring smooth and secure real estate transactions. In our previous fourth-quarter call, we emphasized the importance of refocusing our technological efforts to streamline business operations.

In the first quarter, we proudly announced our strategic partnership with Qualia, which saw Qualia acquiring our settlement and production software platforms, RamQuest and eClosing. By leveraging Qualia's expertise in advanced infrastructure, providing a modern digital transaction, we will be able to equip our direct offices and title agents with cutting-edge tools and solutions. This partnership also allows our internal tech teams to reallocate our focus and resources toward developing other crucial technologies that will help us thrive in a competitive market. It is necessary for our internal systems, such as remittance, policy issuance, CPLs, and rate engines, to work seamlessly with all closing and production platforms. Additionally, integrating fraud prevention systems and AI technologies is of utmost importance to strengthen our security measures and enhance operational efficiencies.

As we continue to be agency-focused, we understand the unique challenges and opportunities that our title agents encounter daily, and we are dedicated to providing them with innovative technological solutions required to maintain a competitive edge. With that, I'll turn it back to Craig.

Speaker 0

Okay. Thanks, Carolyn. Profitable growth continues in specialty insurance, and in title insurance, we remain focused on profitability in a challenging marketplace. On a final note, operating return on equity improved to an annualized rate of 14.4% compared to 11.5% in the first quarter last year, which you might have noticed in the supplement. That is happening as we continue to thoughtfully manage capital, returning excess capital to shareholders. That will conclude our prepared remarks, and we will now open up the discussion to Q&A, where I will answer your questions or I will ask Frank or Carolyn to help me out and respond.

Speaker 6

Ladies and gentlemen, we will now begin the question-and-answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, press star 1 a second time. If you are called upon to ask your question and are listening via speakerphone on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, it is star 1 if you would like to join the queue. Your first question comes from the line of Greg Peters with Raymond James. Your line is open.

Speaker 5

Good afternoon, everyone.

Speaker 0

Hi, Greg.

Speaker 5

Hello. Hey, let's go to the specialty insurance business. As we go through and evaluate your top-line performance in the first quarter, can you give us a sense of how much of the top-line is a function of rate versus actually new business produced? I imagine it's going to vary by segment.

Speaker 0

That's right, Greg. It does indeed vary by segment. As we mentioned in the release, we're seeing rate decreases in the public directors and officers business, as well as, of course, workers' compensation, some slight decreases there. On the other hand, as I mentioned in my earlier comments, we're getting strong rate increases still on our commercial auto business, and we're also getting strong rate increases on our general liability business as well. It really is a mixed bag. I would say that our new underwriting subsidiaries are providing a pretty substantial lift here beyond just rate and retention and new business in the organic segments of our business. As we indicated last year, we were optimistic that as these newest underwriting subsidiaries came online, that we were going to continue to see greater and greater contributions throughout 2025, and that's happening.

We expect it to happen going forward. It is a combination of a lot of things that are driving rate versus growth in organic business versus contributions from new underwriting subsidiaries.

Speaker 5

Right. Maybe on the new business initiatives, because you do not have a lot of historical data inside the company regarding claim patterns, etc., how do you approach the reserving on these ventures, and how do you approach loss picks, etc.?

Speaker 0

Sure. We approach it exactly as we approach all of our other businesses. To your point on the longer tail lines of businesses, we do look at industry data. We look at our own data. To the extent that those lines of business are the same, we are deriving loss patterns from our existing business. The other thing I would point out is that a lot of the new underwriting subsidiaries are shorter tail lines. As mentioned previously, we are trying to diversify the line of coverage mix, and I think we have done a pretty good job of that over the last five years, diversifying away from being so concentrated in just workers' compensation and commercial auto. Through that diversification, we have added a considerable amount of short tail lines. Reserving there is less of an issue.

For instance, Inland Marine coverages, while we have history on Inland Marine experience that we could look at, it's so short tail, it's a year anyway. There's not a lot of tail risk there. Similarly, that would go for our A&H business. It's very short tail, a year to two years. I'll use another example, our new lawyers' professional liability business. We've written professional liability business and even written lawyers' professional liability business. We do have a history there, and we rely on that. I'll just stop with, if you look at our E&S business, they're writing general liability. They're writing some auto liability, some property. Again, the property's short tail, and we have the experience that we look to when we're looking at trends on general liability and auto liability.

To sum it up, again, either we have the experience, we might supplement that with some industry experience, or it's so short tail that it comes out very, very quickly.

Speaker 5

That's good detail. Thanks. I guess the last question, I'll pivot to Carolyn's business. I guess ultimately, the expense ratio improved, but it's still running higher. I don't want to get too hung up on the first quarter, but maybe give us some thoughts about how the expense ratio could improve over the course of the year relative to the prior year. Any thoughts you might have on that?

Speaker 0

Carolyn, I would be happy to kick it off. We mentioned last quarter, and then Carolyn mentioned again in her comments the example where we sold our closing platforms and refocused our technology development efforts on other tools. We think we're partnering with a vendor there that's going to provide even better technologies. That alone will help the bottom line as we move throughout this year. It'll gradually help the bottom line. As we move into next year, we should see probably about a $4 million per quarter improvement in the bottom line because we were incurring expenses there that were greater than the fees that we were taking in. Carolyn, I'll turn it to you. I know there's other things that we're doing as well to manage.

Greg, before I hand it to Carolyn, I would just underscore that I agree with you completely. If you look at last year where we started, it is a similar position, but we ended up the year in a better place because of that first quarter being a quarter that is traditionally very low in transactions. Carolyn, I'll turn it to you.

Speaker 3

Okay. Thank you, Craig. Yeah, we continue to manage our expenses to the market. Greg, it's really going to be based on our top-line revenue. We've got to see the market turn more for us to really have a large effect on our expense ratio. That doesn't stop us. I mean, we're constantly monitoring what we're doing, what we're spending, and how we can change that. I do see it improving, though, throughout the year because we also feel like we're going to see an improved market as we get to this summer.

Speaker 5

On the.

Speaker 3

Does that help?

Speaker 5

Yeah, it does. On the technology piece, as part of your answer or part of Craig's answer, that was principally in the direct operations, right? Were you going to get the savings, or was that also agency too?

Speaker 3

Our platforms were totally separate. They actually only served a small piece of our direct operations. RamQuest and E-Closing were software platforms that were used out in the market by independent title agents. They just rolled up under our whole title operation. They were operated as separate companies that we combined into our financials. It is not really a function of direct or agency. They were separate companies.

Speaker 5

Got it. Thanks for the answers.

Speaker 3

Thank you, Greg.

Speaker 6

As a reminder, it is star one if you would like to ask a question. Your next question comes from the line of Matt Carletti with Citizens. Your line is open.

Speaker 5

Okay. Thank you. Good afternoon.

Speaker 0

Good afternoon, Matt.

Speaker 5

I want to ask you a question on kind of a high-level question, but just there's been a lot of, obviously, focus and discussion on uncertainty in the markets related to the economy and tariffs and all that sort of thing since, call it, April 2nd. Have you seen anything, even anecdotally, in your book of business, whether it be on the specialty side, just projects or clients kind of taking a pause before making decisions? Or there have been some, again, probably anecdotal articles, but about the housing market and how people have kind of stopped and kind of reassessing maybe a move or buying a house. Have you seen any changes in volumes even on the title side since then?

Speaker 0

Right. It is hard to really know if what we are seeing in the way of top line is a result of tariffs or is it some other economic variable. I would say probably an area that you could take some credence from is the reduction in our Canadian business. Of course, exchange rates there have some impact, and you could attribute some of the reduction to just exchange rates alone. Given that a large amount of our business on the trucking side is north-south type of travel, and we have seen a reduction there, I would think some of that is tariff-related.

I feel even more confident saying that our accident business up there, the reductions that we're seeing up there are probably some fallout from the tariff discussions because what our travel accident business does up there, we have the incoming business where you have visitors into Canada and students coming into Canada. We also have business where Canadians, the so-called snowbirds, are heading down into the United States. There's been a lot of media coverage where a lot of Canadians are not deciding to come here and go somewhere else. We've seen a pretty steep drop-off in our travel and accident business. We've seen some drop-off in the commercial trucking business. I think that's an area where it's probably the easiest to surmise that it's probably related to tariffs or at least the ensuing behaviors after the tariffs.

I would just add from a we have not seen anything from a loss cost standpoint. We are keeping our eyes open on the workers' compensation side of things. Tariffs down the line could have an impact on pharmaceuticals, could have an impact on medical devices. On the commercial auto side of things, tariffs could have an impact on vehicle parts and replacement vehicles. As you know, what we do for a living is monitor in as real time as possible what is going on in severity and frequency trends. To the extent that those tariffs start to have an impact on severity trends, we are going to spot it, and we are going to do what we always do and react accordingly, just as we have done when there have been inflationary trends in the past.

Again, for us, that's what we do as part of our underwriting excellence proposition is making sure that we have a complete understanding of changes to exposure trend, frequency trend, severity trends, and we'll be following it very closely. Right now, those are the couple of areas in work comp and a couple of areas in commercial auto that we know we have to keep an eye on.

Speaker 5

Great. Thank you for the color. I appreciate it.

Speaker 6

Your next question comes from the line of Paul Newsom with Piper Sandler. Your line is open.

Speaker 2

Yeah, I got a couple of questions here. First, let me start off with a competitive environment question. One of the themes of this quarter has been softness as you get into larger markets as opposed to middle and maybe small. Are you also seeing that in your book?

Speaker 0

Paul, that's a hard one for us to answer. Most of our business is small and mid-commercial business. If I understood your question, are we seeing a difference between softness and hardness in the small and mid versus the large? On the large, what we do there through our Old Republic Risk Management subsidiary is business whereby the insureds are taking the preponderance of the risk either through large deductibles or captives. That business is very sticky for us. Our rates there are not so much subject to the types of rates you might experience on other kinds of large commercial risk transfer business. This is risk retention business, less rate sensitive. I can't say anything that we've seen in our portfolio is suggesting a difference between our book of small commercial, middle market commercial, and large commercial business.

Speaker 2

A capital markets question or capital management question, pardon me. The buybacks slowed or stopped at a certain point. Curious if there was a reason for that. Maybe you could just talk about sort of the outlook for stock repurchases perspectively given the pause.

Speaker 0

Sure. Yeah, as I think we discussed last quarter, we made the decision based upon our analysis of our capital position to evaluate both special dividends and share repurchases. As I think I commented on, we had the very nice problem of continuing to carry too much capital because as quickly as we could return excess capital and reinvest it, which comes first into our business, we kept replenishing at a faster pace than we could return it. We made the decision at the end of the year to go ahead and issue a special dividend, as Frank commented on, about $500 million through a $2 special dividend because we felt that that enabled us to reset that level or level set that capital base to a more appropriate level without continuing to retain excess capital.

As we commented on, we did have some share repurchases in the first quarter as well. As we go forward, there are a lot of variables at play here. As we entertain other new specialty underwriting subsidiaries, as we entertain the possibility of acquisitions, those require capital. We still have an outstanding authorization under our existing repurchase, and we will continue to execute on that as we go forward. We will see where things are and do what we always do, which is at a point in time where management believes we are continuing or that we have excess capital, we need to return to shareholders. We will take that matter up with our board and decide the best way to return it, whether that is through share repurchases, special dividend, or a combination of the two.

Speaker 2

Maybe one final question. Corporate expense levels look like they jumped a bit in the quarter. The commentary in the press release suggests maybe they are somewhat sustainable, but at these high levels, is that the way to think about it, or is there some other way to think about sort of how the corporate expenses will be? Obviously, not a huge piece of your business, but we have seen a little bit in the first quarter.

Speaker 0

Sure. I'll comment, and then Frank can fill in where he might see appropriate. On corporate expenses, this quarter, as we noted in the release, you have a lot of moving pieces with a lower level of interest income because of the lower invested asset base. You have the RFIG runoff moving out of that piece of the business as well and the $500 million special cash dividend payment. On the expense side of things, a lot of that is related to executive compensation expenses, which were higher. They are higher mostly as a result of performance. A lot of that is variable in nature related to our performance. We have had very strong performance. As a result, higher executive compensation levels, nice problem to have because of the very good performance. We have a higher expense there.

On a go-forward basis, with the reduced level of capital, highly variable income and expenses, I think you can suggest that the bottom line type of loss within corporate is probably going to continue throughout the remainder of the year.

Speaker 2

Good. Thank you for the help. Really appreciate it.

Speaker 6

That concludes our question and answer session. I will now turn the conference back over to management for closing remarks.

Speaker 0

Okay. We have one quarter under the belt, and it feels pretty good thus far. We're very proud of the results we've been able to deliver to shareholders. We thank all of our associates and business partners that have helped us achieve that. Obviously, the economy is a question mark. A lot of volatility, a lot of question marks remain. We will have to see how the rest of the year goes. So far, so good for Old Republic. Thank you very much. We appreciate your time and interest.

Speaker 6

Ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.