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MANAGEMENT ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS Quarters Ended March 31, 2023 and 2022 ($ in Millions, Except Share Data)
OVERVIEW
This management analysis of financial position and results of operations pertains to the consolidated accounts ofOld Republic International Corporation ("Old Republic ", "ORI", or "the Company"). The Company conducts its operations through a number of regulated insurance company subsidiaries organized into three major segments:General Insurance (property and liability insurance),Title Insurance and Republic Financial Indemnity Group (RFIG) Run-off. A small life and accident insurance business, accounting for 0.2% of consolidated operating revenues for the quarter endedMarch 31, 2023 and 0.5% of consolidated assets as of that date, is included within the Corporate & Other caption of this report. The consolidated accounts are presented in conformity with theFinancial Accounting Standards Board's (FASB) Accounting Standards Codification (ASC) of accounting principles generally accepted inthe United States of America (GAAP). As a publicly held company,Old Republic utilizes GAAP to comply with the financial reporting requirements of theSecurities and Exchange Commission (SEC). From time to time the FASB and theSEC issue various releases, many of which require additional financial statement disclosures and provide related application guidance. Recent guidance issued by the FASB is summarized further in the Notes to Consolidated Financial Statements where applicable. As a state regulated financial institution vested with the public interest, however, business of the Company's insurance subsidiaries is managed pursuant to the laws, regulations, and accounting practices of the various states in theU.S. and those of a small number of other jurisdictions outside theU.S. in which they operate. In comparison with GAAP, the statutory accounting practices generally reflect greater conservatism and comparability among insurers, and are intended to address the primary financial security interests of policyholders and their beneficiaries. Additionally, these practices also affect a significant number of important factors such as product pricing, risk bearing capacity and capital adequacy, the determination of Federal income taxes payable currently among ORI's tax-consolidated entities, and the upstreaming of dividends by insurance subsidiaries to the parent holding company. The major differences between these statutory financial accounting practices and GAAP are summarized in Note 1 to the consolidated financial statements included inOld Republic's 2022 Annual Report on Form 10-K. The insurance business is distinguished from most others in that the prices (premiums) charged for most products are set without knowing what the ultimate loss costs will be. The Company also cannot know exactly when claims will be paid, which may be many years after a policy was issued or expired. This castsOld Republic as a risk-taking enterprise managed for the long run.Old Republic therefore conducts the business with a primary focus on achieving favorable underwriting results over cycles, and on maintaining a sound financial condition to support our subsidiaries' long-term obligations to policyholders and their beneficiaries. To achieve these objectives, adherence to insurance risk management principles is stressed, and asset diversification and quality are emphasized. In addition, management engages in an ongoing assessment of operating risks, such as cybersecurity risks, that could adversely affect the Company's business and reputation. In addition to income arising fromOld Republic's basic underwriting and related services functions, significant investment income is earned from invested funds generated by those functions and from capital resources. Investment management aims for stability of income from interest and dividends, protection of capital, and for sufficiency of liquidity to meet insurance underwriting and other obligations as they become payable in the future. Securities trading and the realization of capital gains are not primary objectives. The investment philosophy is therefore best characterized as emphasizing value, credit quality, and relatively long-term holding periods. The Company's ability to hold both fixed income and equity securities for long periods of time is enabled by the scheduling of maturities in contemplation of an appropriate matching of assets and liabilities, and by investments in dividend paying, publicly traded, large capitalization, highly liquid equity securities. In light of the above factors, the Company is managed for the long run and with little regard for quarterly or even annual reporting periods. These time frames are too short. Management believes results are best evaluated by looking at underwriting and overall operating performance trends over 10-year intervals. These likely include one or two economic and/or underwriting cycles. This provides enough time for these cycles to run its course, for premium rate changes and subsequent underwriting results to be reflected in financial statements, and for reserved loss costs to be quantified with greater certainty.
This management analysis should be read in conjunction with the consolidated
financial statements and the footnotes appended to them.
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EXECUTIVE SUMMARY
Old Republic International Corporation reported the following consolidated results: OVERALL RESULTS
Quarters Ended
2023 2022 % Change
Pretax income $ 249.2 $ 382.6
Pretax investment gains 26.2 145.1
Pretax income excluding investment gains $ 222.9 $ 237.5 (6.1) %
Net income $ 199.8 $ 306.3
Net of tax investment gains 20.6 114.5
Net income excluding investment gains $ 179.2 $ 191.7 (6.6) %
Combined ratio 92.7 % 91.9 %
PER DILUTED SHARE
Quarters Ended
2023 2022 % Change
Net income $ 0.68 $ 1.00
Net of tax investment gains $ 0.07 $ 0.37
Net income excluding investment gains $ 0.61 $ 0.63 (3.2) %
SHAREHOLDERS' EQUITY (BOOK VALUE)
Mar. 31, Dec. 31,
2023 2022 % Change
Total $ 6,331.9 $ 6,173.2 2.6 %
Per Common Share $ 21.91 $ 21.07 4.0 %
The Company reported pretax income, excluding investment gains (losses), of
$222.9 for the quarter. General Insurance pretax operating income rose 35.6%,
while Title Insurance results were negatively impacted by the effect of elevated
mortgage interest rates. Solid General Insurance underwriting results led to a
consolidated combined ratio of 92.7%.
Consolidated net premiums and fees earned were down 19.0% for the quarter, with
Title Insurance dropping 41.6% as a result of lower revenues in both direct and
agency operations, while General Insurance grew 5.9%. Net investment income
increased significantly in the quarter, primarily due to higher investment
yields earned.
During the quarter, the Company returned total capital to shareholders of
approximately $204 , comprised of $71 in dividends, and nearly $133 of share
repurchases (5.3 million shares at an average price of $25.10 per share).
Following the close of the quarter, the Company repurchased $35 of additional
shares (1.4 million shares at an average price of $24.97 per share), thereby
completing its repurchase program under the most recent authorization.
Book value per share grew to $21.91 as of March 31, 2023 , reflecting higher fair
market values in the investment portfolio during the quarter and operating
earnings. With the addition of dividends declared during the quarter, this was
an increase of 5.1% over year-end 2022.
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Old Republic's business is managed for the long run. In this context
management's key objectives are to achieve highly profitable operating results
over the long term, and to ensure balance sheet strength for the primary needs
of the insurance subsidiaries' underwriting and related services business. In
this view, the evaluation of periodic and long-term results excludes
consideration of all investment gains (losses). Under Generally Accepted
Accounting Principles (GAAP), however, net income, inclusive of investment gains
(losses), is the measure of total profitability.
In management's opinion, the focus on income excluding investment gains
(losses), also described herein as segment pretax operating income, provides a
better way to analyze, evaluate, and establish accountability for the results of
the insurance operations. The inclusion of realized investment gains (losses) in
net income can mask trends in operating results, because such realizations are
often highly discretionary. Similarly, the inclusion of unrealized investment
gains (losses) in equity securities can further distort such operating results
with significant period-to-period fluctuations.
FINANCIAL HIGHLIGHTS
Quarters Ended March 31,
SUMMARY INCOME STATEMENTS: 2023 2022 % Change
Revenues:
Net premiums and fees earned $ 1,555.2 $ 1,919.0 (19.0) %
Net investment income 137.8 106.2 29.7
Other income 39.4 36.2 8.8
Total operating revenues 1,732.4 2,061.5 (16.0)
Investment gains (losses):
Realized from actual transactions and impairments 28.2 65.2
Unrealized from changes in fair value of equity securities (2.0) 79.8
Total investment gains 26.2 145.1
Total revenues 1,758.7 2,206.6
Operating expenses:
Loss and loss adjustment expenses 603.9 607.9 (0.7)
Sales and general expenses 888.6 1,199.0 (25.9)
Interest and other charges 16.9 16.9 -
Total operating expenses 1,509.5 1,823.9 (17.2) %
Pretax income 249.2 382.6
Income taxes 49.3 76.3
Net income $ 199.8 $ 306.3
COMMON STOCK STATISTICS:
Components of net income per share:
Basic net income excluding investment gains (losses) $ 0.61 $ 0.63 (3.2) %
Net investment gains (losses):
Realized from actual transactions and impairments 0.08 0.17
Unrealized from changes in fair value of equity securities (0.01) 0.21
Basic net income $ 0.68 $ 1.01
Diluted net income excluding investment gains (losses) $ 0.61 $ 0.63 (3.2) %
Net investment gains (losses):
Realized from actual transactions and impairments 0.08 0.17
Unrealized from changes in fair value of equity securities (0.01) 0.20
Diluted net income $ 0.68 $ 1.00
Cash dividends on common stock $ 0.245 $ 0.230
Book value per share $ 21.91 $ 22.24 (1.5) %
We believe the information presented in the following table highlights the most
meaningful indicators of ORI's segmented and consolidated financial performance.
The information underscores the performance of our underwriting subsidiaries, as
well as our sound investment of their capital and underwriting cash flows.
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