Business Overview
Old Republic International Corporation (ORI) has weathered the ups and downs of the insurance industry with unwavering resilience, consistently delivering solid financial results and nurturing a strong market presence. As a leading provider of general and title insurance products, Old Republic has navigated the dynamic landscape with a steadfast commitment to disciplined underwriting, prudent risk management, and a focus on long-term value creation.
Historical Background
Tracing its roots back to 1923, Old Republic has evolved into a diversified insurance conglomerate, offering a comprehensive suite of products that cater to the needs of both commercial and individual clients. In its early years, the company faced challenges common to many young insurance companies, such as establishing a stable customer base and building up its capital reserves. However, Old Republic successfully navigated these obstacles through prudent risk management and a commitment to conservative underwriting practices, allowing it to emerge as a stronger, more resilient organization.
A significant milestone in the company's history occurred in the 1940s when Old Republic began paying an annual cash dividend to shareholders, a practice that has continued uninterrupted for over eight decades. This commitment to shareholder value was further reinforced in 1960 when the company listed on the New York Stock Exchange, providing greater access to capital markets and enhancing its public profile.
General Insurance Segment
The General Insurance segment, which accounts for the majority of Old Republic's revenue, has demonstrated exceptional performance, driven by a strategic emphasis on specialty lines and a keen eye for emerging opportunities. This segment has weathered various industry challenges, including changing regulatory environments, technological disruptions, and shifting market dynamics, while maintaining its focus on prudent risk management and conservative underwriting.
The General Insurance segment provides a wide range of property and liability insurance coverages. Commercial auto insurance is the largest contributor, accounting for 41.3% of the segment's net premiums earned in Q3 2024, with strong rate increases in this line. Workers compensation follows at 17.6%, although it experienced some unfavorable developments in 2024 after years of favorable trends. Property insurance contributes 13.2% and has also seen strong rate increases. Financial indemnity, including public D&O and transactional risk coverages, accounts for 6.6% but has experienced some declines. General liability contributes 8.2% with strong rate increases, while home and auto warranty make up 6.9%, including a new auto warranty program driving growth.
The segment has maintained a combined ratio between 89-94% in recent years, indicating generally profitable underwriting results. However, the Q3 2024 combined ratio of 94% was higher than the prior year period due to lower favorable prior year loss reserve development.
Title Insurance Segment
The Title Insurance segment provides title insurance and related real estate transaction services. Approximately 78% of the segment's premium and fee revenue comes from independent title agents, while the remaining 22% is from the company's direct operations. Commercial title premiums accounted for around 20% of the segment's net premiums earned in Q3 2024, down from 22% in the prior year period.
This segment has maintained very low single-digit loss ratios in recent years, reflecting favorable claims frequency and severity trends. The Q3 2024 loss ratio was 2.8%, slightly higher than the prior year period. The segment's expense ratio has ranged from 93-95% in recent years, benefiting from scale and expense management initiatives.
Financials
Old Republic's financial position has remained robust, with a strong balance sheet and ample liquidity to support its growth initiatives. As of the latest reporting period, the company boasted a debt-to-equity ratio of just 24.81%, underscoring its financial discipline and ability to weather market volatility. This solid financial foundation has enabled Old Republic to weather economic storms and capitalize on opportunities as they arise.
For the fiscal year 2023, Old Republic reported revenue of $7.26 billion and net income of $598.6 million. Operating cash flow and free cash flow both stood at $880.4 million. In the most recent quarter (Q3 2024), the company generated revenue of $2.34 billion, representing a year-over-year growth of 9.6%. Net income for the quarter was $338.9 million. However, operating cash flow and free cash flow were both negative at -$397 million for the quarter.
The company's commitment to shareholder value is evident in its consistent dividend payments, which have been uninterrupted for over eight decades. Additionally, Old Republic has actively repurchased its shares, returning a record $975 million to shareholders in the first nine months of 2024 through a combination of dividends and share buybacks.
Recent Performance
In the General Insurance segment, Old Republic has strategically expanded its footprint, with a particular focus on specialty underwriting subsidiaries. These new business units, such as Old Republic E&S and Old Republic Inland Marine, have contributed to the segment's impressive 16% growth in net written premiums during the third quarter of 2024. This diversification has helped the company navigate the evolving market dynamics and capitalize on emerging opportunities.
The Title Insurance segment, while facing headwinds from the current tight real estate market and rising mortgage rates, has demonstrated resilience. The segment's pretax operating income of $40 million in the third quarter, a 7.5% increase year-over-year, underscores the strength of Old Republic's diversified business model.
Market Outlook
Despite the challenges posed by the volatile real estate environment, Old Republic remains cautiously optimistic about the future. The company's management has expressed that the real estate market may be at the beginning of a transition, and they are positioning the Title Insurance segment to capitalize on the anticipated recovery.
Liquidity
As of September 30, 2023, Old Republic had a cash position of $525.2 million. The company's current ratio and quick ratio both stood at 2.228, indicating a strong ability to meet short-term obligations. These liquidity metrics, combined with the low debt-to-equity ratio, demonstrate Old Republic's financial stability and flexibility.
Across both its General Insurance and Title Insurance segments, Old Republic has maintained a conservative approach to reserving, which has enabled the company to consistently generate favorable prior-year loss reserve development. This disciplined approach has contributed to the company's solid underwriting results, with the consolidated combined ratio of 95% in the third quarter of 2024 remaining within the targeted range of 90% to 95%.
Future Outlook
Looking ahead, Old Republic's management has reaffirmed its commitment to investing in technology and innovation across both business segments. These strategic investments are expected to enhance operational efficiencies, improve customer experiences, and position the company for long-term success in an increasingly competitive and rapidly evolving insurance industry.
Old Republic expects solid growth and profitability in General Insurance to continue for the remainder of 2024, reflecting the success of their specialty strategy, operational excellence initiatives, and new specialty underwriting subsidiaries. For recent catastrophe losses, the company expects ultimate losses for Hurricane Helene to be between $8-10 million and ultimate losses for Hurricane Milton to be between $18-23 million.
The Title Insurance business remains focused on modernization efforts in their direct operations and bringing value to their agents as the market recovers. Old Republic plans to continue its capital return to shareholders through dividends and share repurchases, with about $385 million remaining on their current repurchase authorization as of the latest report.
In 2024, Old Republic remains on track to produce their 10th consecutive year of favorable loss reserve development. For the first 9 months of 2024, the General Insurance business had a combined ratio of 92.3%, which is exactly in the middle of their target range of 90-95%.
Conclusion
In conclusion, Old Republic International Corporation's unwavering focus on underwriting discipline, prudent risk management, and a steadfast commitment to shareholder value has enabled the company to navigate the insurance landscape with resilience. As the company continues to adapt to industry dynamics and capitalize on emerging opportunities, Old Republic remains well-positioned to deliver sustained growth and consistent returns for its investors.