Old Republic International Corporation Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Craig mentioned the company's strong growth and profitability continued in the second quarter of 2025, with consolidated pretax operating income at $267.5 million, up from $253.8 million in the second quarter of 2024. Conservative reserving practices led to favorable prior year loss reserve development in both Specialty Insurance and Title Insurance. The balance sheet remains strong, with investments in new specialty underwriting subsidiaries, technology, and talent.
• Frank noted net operating income was $209 million for the quarter, up from $202 million last year. Per share basis was $0.83, up from $0.76. Net investment income increased 2.4% due to higher yields on the bond portfolio partially offset by lower invested asset base. Both Specialty Insurance and Title Insurance recognized favorable loss reserve development, leading to a benefit in the consolidated loss ratio.
• Carolyn reported Title Insurance had premium and fee revenue of $698 million, up 5% from the second quarter of 2024. Continued to progress with digital transaction tools and solutions through strategic partnerships. Focused on providing innovative technological solutions to agents and employees to maintain a competitive edge.

Segment Performance

• Specialty Insurance: Net premiums earned grew 14.6% in the second quarter. Produced $253.7 million of pretax operating income, up from $202.5 million in the second quarter of 2024. Combined ratio was 90.7 in the quarter, compared to 92.4 in the second quarter of 2024. Net premiums written for commercial auto grew 10%, loss ratio 70.3; for workers' comp, net premiums written were 2% lower, loss ratio 48.5.
• Title Insurance: Premiums and fees earned grew 5.2% compared to the second quarter last year. Produced $24.2 million of pretax operating income, down from $46 million in the second quarter last year. Combined ratio was 99 in the quarter, compared to 95.4 in the second quarter of last year. Premium from direct title operations up 3%, agency produced premiums up 7% (77% of revenue during the quarter), commercial premiums 23% of earned premiums (up from 21% in 2024). Investment income up nearly 12% compared to second quarter of 2024.

Guidance

• Craig expects solid growth and profitability to continue in Specialty Insurance throughout the rest of 2025, reflecting the success of the specialty strategy and operational excellence initiatives, with growing contributions from newer specialty underwriting subsidiaries. For Title Insurance, aspiration is to get the combined ratio below 95, with efforts to look inward for more efficient spending to reduce costs.

Risks

• Competition in certain lines of business, such as potential spread of rate decreases seen in Texas to other states. Market conditions including high mortgage interest rates and slow real estate market impacting Title Insurance. Uncertainties related to investment yield trends and potential impact of unforeseen events on the balance sheet.

Q: In your comments, Craig, you talked about retention across your Specialty Property Casualty business. Can you give us a little more detail about how retention is moving across different lines of business?

A: Regardless of the line of business or the subsidiary, renewal retentions are north of 85% across the board, attributable to the value proposition of selling service, specialty expertise, etc.

Q: There's no stock repurchase in the last quarter. It sounds like to date, why not? And how do you think about your own capital position at the moment?

A: We had a $2 special dividend in the first quarter and have made large share repurchases in prior years. Closely look at special dividends and share repurchases, considering market price relative to book value. Conservative in capital management, mindful of ROE and maintaining a strong balance sheet.

Q: I wanted to maybe to revisit to capital management. Where do you think the longer-term trend here, we see a trend is for investment?

A: New money rates coming in on the fixed income portfolio are getting tight. Incremental improvements possible, but no big dramatic increase expected.

Q: My question is on the Specialty returning segment. Has anything given how consistently you kind of outperformed or almost outperformed that range. Can we talk about like has anything fundamentally changed in terms of the mix of your business or how well you guys are executing that might allow you to kind of tighten or lower that range in terms of guidance on the combined ratio for the full cycle?

A: Our portfolio complexion and lines of business mean combined ratio range of 90 to 95 is expected, given casualty-focused business and line proportions.

Q: Obviously, there's been -- AI is the talk of the town in various industries. And I'm just curious how you guys are playing with or implementing AI at this point?

A: Involved in exploring AI tools, hired an AI leader. Need data analytics to go hand in hand with AI. Investing in technology to retire legacy IT debt and build data analytics team, with numerous AI projects in exploration for better decisions and efficiencies.

Q: On the Title Insurance business, do you guys think -- do you think that you need to see mortgage rates fall before you start to see combined ratios getting back into the 96, 95 or below range?

A: Not satisfied with Title Insurance combined ratio above 95. Working to bring it down by looking at spending, e.g., discontinuing focus on closing platform. Aspiration is to get below 95, with efforts to be more efficient inwardly.