My name is Chris, I'll be your conference operator today. At this time, I'd like to welcome everyone to The Old Republic International Q4 2022 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 this time, simply press star, then the number one on your telephone keypad. To withdraw your question, please press star one again. Thank you. Joe Calabrese with the Financial Relations Board, you may begin.
Thank you, Chris. Good afternoon, everyone, and thank you for joining us for The Old Republic Conference Call to discuss the company's Q4 2022 results. This morning, we distributed a copy of the press release and posted a separate financial supplement, which we assume you have seen and/or otherwise have access to during the call. Both of the documents are available at Old Republic's website, which is www.oldrepublic.com. Please be advised that this call may involve forward-looking statements as discussed in the press release and financial supplement dated January 26, 2023. Risks associated with these statements can be found in the company's latest SEC filings. This afternoon's conference call will be led by Craig Smiddy, President and CEO of Old Republic International Corporation, and several other senior executive members as planned for this meeting. At this time, I would like to turn the call over to Craig Smiddy.
Please go ahead, sir.
Okay, Joe. Thank you very much. Good afternoon, everyone, and welcome again to Old Republic's Q4 Earnings Call. With me today are Frank Sodaro, our CFO of ORI, and Carolyn Monroe, our President of the Title Insurance business. As some of you may have seen earlier this week, we officially kicked off our recognition of the 100-year anniversary of Old Republic. Throughout the year, we plan on engaging with all of our stakeholders, including our shareholders, associates, customers, distribution partners, as we look to celebrate this milestone. ORI had another good quarter contributing to a strong performance for 2022, with General Insurance producing significantly greater pre-tax operating income in the quarter and for the year, while Title Insurance pre-tax operating income was considerably less than the record-setting 2021 results, mainly due to the effects of increasing mortgage interest rates.
Our reserve position remains healthy in all of our segments, led by General Insurance, with very strong favorable prior year reserve development in the quarter and in the year. Our balance sheet is in great shape as we continue to efficiently manage our capital position. As the release indicates, we returned a considerable amount of capital to shareholders during the quarter and the year through both dividends and share repurchases. Consolidated net premium and fees earned for the quarter and the year were lower, reflecting the lower year-over-year Title Insurance revenues. General Insurance net premiums earned increased by 7% for the year, while Title Insurance net premium and fees earned decreased by 29% in the quarter and 13% for the year.
Our consolidated pre-tax operating income was $300 million for the quarter and just over $1 billion for the year, while our consolidated combined ratio came in at a very profitable level of 89.6% for the quarter and 91% for the year. Both General Insurance and Title Insurance produced sound, profitable underwriting results as is reflected in their respective combined ratio. Going into 2022, our expectation for Title Insurance was for considerably less revenue and operating income than the 2021 year, and we remain of the view that headwinds will continue for Title Insurance in 2023. ORI's strong consolidated results once again reinforces the soundness of our long-standing diversification strategy between P&C insurance and Title Insurance, which we believe produces steadier earnings and returns over time. I'll now turn the discussion over to Frank.
Frank will turn things back to me to cover General Insurance, which will be followed by Carolyn, who will discuss Title Insurance. As usual, we'll open up the conversation for Q&A. With that, Frank, I hand it to you.
Thank you, Craig, and good afternoon, everyone. This morning, we reported net operating income of $237 million for the quarter and $845 million for the year. On a per-share basis, comparable year-over-year results were $0.80 versus 0.88 for the quarters and $2.79 versus 3.08 for the full years. Although both periods were down when compared to the record set last year, our consolidated earnings were strong by historical standards. Shareholders' equity ended the year at nearly $6.2 billion, resulting in book value per share of $21.05. When adding back dividends, book value increased just under 1% from the prior year-end, driven by our strong operating earnings offset by lower investment valuations. The comparable increase for the quarter was 12.5% due to higher investment valuations and our strong operating results.
Net investment income increased nearly 18% and 6% in the quarter and year, respectively. The increase for the quarter was driven primarily by higher yields, while the year benefited from both higher yields and an increase in the level of investments. During the quarter, we completed the rebalancing of our investment portfolio. For the year, we realized $375 million in net investment gains on sales of common stocks while offsetting those gains for tax purposes with sales of bonds, giving us realized investment gains of $62 million. This effort leaves us with a comfortable portfolio mix of 80% in highly rated bonds and short-term investments, with the remaining 20% allocated to large-cap dividend-paying stocks. The average maturity on the bond portfolio is 4.3 years, with a book yield of 3.3% compared to a market yield of 3.5%.
Even after reducing the stock portfolio by roughly $2 billion, this portfolio still ended the year with unrealized gains of about $1.3 billion. Now turning to reserve development. All three operating segments recognized favorable loss reserve development for all periods presented. In total, the consolidated loss ratio benefited by 7.4 and 3.7 percentage points for the quarter and year, respectively, compared to 4.6 and 2.7 percentage points for the same periods a year ago. Prior year losses have come in lower than expected, driving this level of favorable development. While the mortgage insurance loss costs continue to be favorable, the trends of lower newly reported defaults and higher cure rates on loans already in default are beginning to fall in line with pre-COVID levels, as expected.
This group paid another $35 million dividend to the parent holding company in the quarter, bringing the total returned to 140 million year to date. In the quarter, we paid $67 million in dividends and repurchased over 175 million worth of our shares for a total of just over $240 million returned to shareholders. We enter 2023 with $169 million remaining on our existing repurchase authorization, which we will continue to execute on opportunistically. I will now turn the call back over to Craig for a discussion of general insurance.
Okay, Frank. Thank you for that. For general insurance, net premiums written increased by 1% in the quarter and 8% for the year. Of note here, premiums written in the quarter were affected by premium adjustments, including audit premiums. Our expectation is for premiums to continue to grow at a pace more consistent with what you see in the overall 2022 annual growth rate. We continue to achieve rate increases on most lines of coverage with the exception of D&O and workers' compensation. Our renewal retention ratios and new business production remains very strong. Pre-tax operating income rose by 35% in the quarter and by 17% for the year to $690 million. The loss ratio for the quarter was 57%, including 10 points of favorable loss reserve development, while the full year loss ratio was 62% compared to 65% in 2021.
Turning to the expense ratio for the year, it came in at 27.4% compared to 26.5% in 2021, with continued growth in lower loss ratio, higher commission ratio lines of coverage adding approximately one percentage point of additional commission to the expense ratio for the year. The combined ratio for the year was 89.5% compared with 91.3% in 2021. Turning more specifically to a few of the significant lines of coverage, commercial auto net premiums written continued to grow at an 11% clip during the quarter, while net premiums earned grew 7%. The loss ratio for the year was 66.6% compared to 71.5% in 2021.
While this line of coverage benefited from favorable prior year loss development in both periods, auto liability loss severity continues at the high single-digit level and auto physical damage loss severity continues at a low double-digit level, while loss frequency still remains below the pre-pandemic levels. Our rate increases on this line of coverage are in the high single-digit range, which implies that we continue to cover overall loss frequency and severity trends. We think our rate levels remain adequate relative to our target combined ratios for commercial auto. Looking at workers' compensation, net premiums written came in lower for the quarter and relatively flat for the year, affected by the premium audits I mentioned earlier and continued rate decreases. Loss ratio improved to 46% for the year from 59% last year.
Here too, this line of coverage benefited from favorable prior year loss development in both periods, with loss severity slightly up and loss frequency continuing to trend favorably. Here too, we think our rate levels remain adequate relative to our combined ratio targets. We continue to follow loss frequency and severity trends very closely, especially in this inflationary environment that we're in, and we adjust for these inflationary trends that drive severity as appropriate. We believe our specialty growth strategy and our operational excellence initiative should continue to produce solid growth and profitability for general insurance as we move forward. Carolyn, I'll now turn the discussion over to you to report on title insurance.
Thank you, Craig. The Title group reported premium and fee revenue for the quarter of $836 million, down 29% from Q4 2021. Our pre-tax operating income of $45 compared to 137 million in Q4 2021. Agency premiums were down 27%, and direct premiums and fees were down 39% compared to Q4 of 2021. Our combined ratio for Q4 of 2022 of 96.2% compared to Q4 of 2021 of 89.4%. The combined ratio for Q4 would have been 94.1% without the state sales tax assessment, as noted in the release, which we expect to recover.
While increasing mortgage rates, refinance decline, and a softening housing market impacted our residential activity, our commercial activity remained strong in Q4, with commercial premiums up 13% over Q4 2021 and represented 26% of our total premiums, compared to 18% in Q4 of 2021. Commercial premiums reported for full year 2022 represented an all-time high for the Title group. As we enter 2023, we'll continue with a focus on commercial opportunities. During 2022, we transformed and aligned our commercial operations with an internal structure that allows us to leverage more tools, resources, and support to enhance our capacity to deliver in this sector. With technology being an integral part to our business strategy, we will continue delivering on our digital future.
While we are committed to delivery on our large technology projects and platforms as highlighted in prior calls, we are also equally committed to continual enhancements to our current technology portfolio. The ability to electronically record with counties is an essential step in our digital end-to-end process vision. Throughout 2022, our eRecording company, ePN, has had the fastest growing network of county connections of the major platforms. This growth in our network will give our offices and agents additional access to counties throughout the country for closing files electronically. As we continue to work in a market facing headwinds, we'll take advantage of the opportunity to refine, evaluate, and enhance our services to our customers with an emphasis on our growing portfolio of technology to deliver measurable benefits and success for the industry, the company, and our shareholders. With that, I will turn it back to Craig.
Thank you, Carolyn. Okay, we think our diversification and specialty strategies produced another year of solid performance and profitable results as reflected in these consolidated figures. That concludes our prepared remarks, and we'll now open up the discussion to Q&A. I will answer your questions or I'll defer to Frank or Carolyn to respond. With that, can we please open up to Q&A?
Certainly. As a reminder, please press star one if you would like to ask a question. Our first question is from Greg Peters with Raymond James. Your line is open.
Good afternoon, everyone.
Hi, Greg.
It does feel like life has returned to normal with the Chicago's finest returning from lunch hour during your prepared remarks.
We do that just for you, Greg.
Right. The prior year reserve development is clearly a surprise. Maybe you can, you know, give us some color on what years, where it's coming from, and, you know, I know you did some comments on it, but I was looking at the table on your press release, and it's the one where you talk about the loss ratio, excluding prior period loss reserve development. You know, if looking at the annual numbers, not getting caught up in the quarterly numbers, but the annual numbers have been trending down quite nicely. As you think about general insurance, you know, for 2023 and 2024, how do you see this loss ratio ex prior period reserve development trending? Is it stabilizing? Is it going to start ticking up?
What sort of review of how this is going to look going forward?
Craig, I'll answer the latter part of your question first, then I'll turn it to Frank to give a little more color around the reserve development that you mentioned at the beginning of your question. The loss ratio excluding prior period loss reserve development is, as you say, trending down. That is a result of a few things. One is we've mentioned several quarters in our calls about the effects of the compounding rate increases. We continue down that path. As those rate increases continue to compound, we have the ability to look at the current year more favorably when we set the loss pick. Additionally, as we mentioned when I talked about the expense ratio, we are writing more lines that have lower loss ratios.
One point is the figure I gave, one point of higher expense ratio coming from commission comes along with that. At the end of the day, we might be seeing a couple of points of improvement in the loss ratio from the line of coverage mix. There is some offset there with a bit higher expense ratio. Those things together are what is reflected here in this loss ratio, excluding the prior period development. Now I'll let Frank talk more about where this favorable loss development is coming from.
Greg, yeah, it's actually a fairly similar story for the quarter and year to date. The quarter had $100 million of favorable development and the year was just under $200 million. The vast majority of this is coming from workers' comp and commercial auto. It's fairly evenly split. As far as the years it's coming from in total, mostly all years are favorable going all the way back to 2009. The only exception that I would mention is for the year to date numbers, we had the public company D&O that developed unfavorably and that affected 2018 and 2019.
Just as a follow-up to your answer, Frank, you said all years. It's my impression that Old Republic's approach to reserving was sort of a lockbox approach for the first three to five years, depending on the coverage. Has that changed?
Greg, Craig here. I'll be happy to answer that. It has not changed our approach to those loss picks and taking an approach whereby we are cautious about recognizing good news. On the other hand, we're very quick to recognize what looks to be bad news. All of that is exactly as it's always been. Your recollection is spot on when it comes to workers' compensation. Five years is generally what we believe is necessary to really understand where those losses are coming in. On auto liability, we think it takes at least three years on that line of coverage to really have an idea of where it might come in. However, there's only so much constraint we can have if indications are that reserves are very redundant. We do have some requirements to perhaps recognize those. In those cases, there could be an exception.
Our reserving approach is identical to what it has always been.
Just to clarify on that, Craig, was there an exception to Q4 release or was that just the normalized approach that you have?
We did see in Q4 where workers' compensation and auto liability were coming out the very top end of the ranges. There was some adjustment to those lines. As Frank said, the majority of it is from years going back all the way to 2009. When we're in a position where we have to report our earnings and we're out the top end of the actuarial ranges, sometimes we're forced to perhaps recognize things a bit earlier than we would want to.
It makes sense, and thanks for the color and information on that. I guess, you know, you know, so I don't hog time, I'll just ask one other question. Carolyn, I'll pivot to you. You know, obviously there's headwinds this year and last year to a degree. It looks like the expense ratio for Q4 was running a little bit higher than probably where you want it to be. Can you just sort of, you know, you know, revisit, you know, how you plan to manage expenses as the volatility of revenue sort of ebbs and flows with what's going on in the mortgage market?
Sure. You know, we kind of started as we got to the end of Q4 realizing, you know, what the next year is gonna be like. You know, we've adjusted we feel like where we need to within our operations. You know, one of the things about us is our focus on agency and, you know, there's a lot of expenses that just adjust themselves with that business model. But we have a. You know, Greg, we have people that have managed through these cycles before. They managed through the Great Recession. I just kind of have faith in our management to be watching this. We have a call every week to talk about it. You know, we're just. We're watching and cutting out everything that we need to do.
You know, we're getting back to, you know, what 2018 and 2019 looked like, and that's how we're starting to manage our operation again.
Got it. Makes sense. Thanks for the answers.
Again, as a reminder, please press star one if you'd like to ask a question. The next question is from Matthew Carletti with JMP Securities. Your line is open.
Hey, thanks. Good afternoon.
Good afternoon, Matt. How are you?
Oh, good. Yourself?
Good. Thank you.
I'll start with a follow-up on Title. I think you covered a lot of what I wanted to ask there. Maybe the question is, you know, we've seen kind of in the public domain, just everybody's seen, you know, mortgage rates pull back a bit from their highs. Seems like mortgage applications in recent weeks have come up a little bit. Are you guys seeing, you know, some follow-through or some stabilization in kind of Title volumes as we in the recent months at least that we might not see in the recent quarters?
No, that really hasn't hit yet when, you know, when that changes in with the rates and the originations. It takes a little while for it to start hitting the, you know, the title companies. I, I'm gonna say that we don't feel like we're gonna see any kind of a change until probably Q2 . That's when we'll start. You know, we're sort of in that Q2 cycle that we used to always be in, where people, they kind of do a little bit, they sit back, they wait and see what's gonna happen, and then they really start getting serious, and we start seeing movement again in Q2 .
Okay. That makes sense. That's helpful. Then just want to circle back to general insurance, some of the reserve discussion there. I was just hoping you could maybe even dig a little deeper and specifically kind of what are some of the root things driving the development? What I mean by that, is this, is this, you know, medical loss costs have come in better than expected, you know, like with workers' comp or is it more wage related or just kind of what are the underlying drivers? I know it's across a lot of accident years, but what are some of the underlying drivers that are, you know, pushing it?
Yeah, Matt, I'd be happy to talk about that. You know, in this case, it's probably the same answer for both auto liability and for workers' compensation, and that is loss frequency. As I mentioned in my comments, loss frequency ended up being lower than I think we anticipated in several of those years and therefore there was some benefit. Then as I mentioned in my response to Greg, you have, you know, compounded rate increases and when those earn through and you're trying to follow what's happening with losses and you look back, in some cases we had more rate than would've been necessary from the loss cost trend in severity and frequency.
You know, it's a combination of those things, but clearly on commercial auto, severity is while five, six years ago, you know, the spike was tremendous and it has leveled out in that upper single-digit level for the last few years. Our rate increases are keeping up with that at this point. Severity is still an issue on auto liability. On workers' compensation, as I also mentioned in my comments. There's a little bit of severity, but nowhere near to the degree you might see with respect to, say, general inflation or even general medical inflation. Because with workers' compensation, you have a lot of constraints around managed care and constraints around schedules that are in place in the various states for billing.
The workers' comp medical inflation trend is not, again, as great. There's a little bit of severity there that's emerging. Here, too, it's a frequency story that has gone on for, what, better than a decade now in comp, where as technology improves and safety in particular benefits from that technology, and there's less workplace accidents, frequency comes down. You know, back to a frequency story on comp as well.
Great. Thank you very much for the color. It's very helpful.
Thank you, Matt.
The next question is from Paul Newsome with Piper Sandler. Your line is open.
Hi, Paul.
Good morning. Thanks for letting me ask a question. I was hoping, you know, to ask a kind of a big picture question on Title. Could you just kind of refresh and talk about how your business today is the same or different than it was in, you know, I'm seeing that chart, you know, 2014, and then perhaps even the financial crisis. Why would or we wouldn't see some of the same revenue changes related to what has happening in 2005? Why wouldn't we see some of the same operating leverage, if we use those two periods as a benchmark?
Paul, just to be clear, comparing back to the financial crisis years, 2007, 2008, 2009?
Yeah. As well as I'm looking at your slide presentation, it looks like we had a little refi bubble in, I think, 2014, that also affected revenues as well, right? you know.
Right.
Maybe just comparing and contrasting those two periods.
Okay. Sure. Carolyn, if you don't mind, I'll just give my initial thoughts and then let you fill in. With respect to refi, you know, that well has dried up considerably in, at this point of where we're at with mortgage interest rates. What you're seeing come through in our numbers and you would see that in our order count, our order count is significantly down. That order count includes refis. As I say, they have essentially dried up at this point. Comparing back to the financial crisis, if I understood some of your question. You know, when we look at the loss ratios and what we're seeing today, we're in a very different environment with respect to loss ratios.
You know, back in the financial crisis period, with all of the issues around mortgages and how those mortgages were underwritten, or perhaps maybe not underwritten very well, everyone was looking to find any outlet they could to try to have some kind of recovery. That resulted in some pressure on our Title business. As I think most of us know, in this current environment and over the last many years, the mortgage underwriting has been tightened substantially and, therefore, some of those knock-on effects we were seeing back in that financial crisis years, we don't expect to come through. Carolyn.
Please feel free to add to whatever I said or modify what I've said and fill in if you could.
No, I think you've covered it. The only thing I'll add is that, you know, one of the things that we really follow are the MBA and the Fannie Mae forecasts. They, they give us, you know, trends of what's happened with refis. There's nothing showing that we're gonna bounce back with refis like, you know, we did after those years right now.
The only other thing I would just add, Paul, more specific to our portfolio, is we are different than our two larger competitors in this space, in that about 80% of our business comes through independent agents. We essentially have a variable cost model where in downturns, we don't have the level of fixed overhead to absorb, given that the independent agents are bearing that. So that's an important thing to keep in mind. The only other thing relative to those earlier time periods you spoke about, is what we've done in commercial, specifically at Old Republic. Carolyn touched on where we're at with commercial in her comments, and that has been a focus of ours.
We've intentionally tried to expand our footprint in that space, over the last several years, five or more years. That is paying some dividends, as Carolyn pointed out in her comments, where we set a record on the amount of commercial transactions, which helped offset some of the residential headwinds that we're facing.
Great. Thank you. Just appreciate the help, that's a ll.
Thank you. We appreciate your interest.
Again, that's star one to ask a question. The next question is from Greg Peters with Raymond James. Your line is open.
Yes. I thought I'd sneak in with a follow-up. Obviously, it's topical to where other companies are commenting on their reinsurance renewals, and you really haven't commented on that. One of the other things that's popped up with some of the other carriers is that they were hearing that the reinsurance commission rates have come in a little bit in certain instances. Just curious about your experience with your January renewals and, you know, what your view is on that?
Sure, Greg. I'll be happy to talk about that. Our property reinsurance renewal is a July first renewal. Hopefully things will settle down a bit by then. I think most of our peers in the industry probably have a January first renewal. As we all observed, things look very, very tough. As we go into that July renewal, our expectation is that rates will be higher on our catastrophic cover and that we need to be prepared for that now and be cognizant of what additional costs we need to absorb in the pricing that we charge for our product on the front end. We're doing that already.
The other thing is we anticipate that we might have to take a bit higher retention on our business, on our property business, cat business. We as you know, manage that to a very low retention relative to our peers. That's why one of the reasons we don't write a large amount of property as you know, relative to our peers. For the property we do write, we buy a significant amount of reinsurance at a relatively lower attachment so that we don't introduce balance sheet volatility with writing property like some of our peers do. With respect to our casualty renewals, it really depends. If you're on our workers' compensation reinsurance renewals, everything's was very steady.
On the other hand, on our umbrella liability renewals, as you would expect with severity increasing and the judicial abuses that we're observing with litigation financing and jury verdicts, you can expect that the umbrella business that we write will have to increase commensurately with the reinsurance pricing that we're seeing there, which has increased. Then you also have other lines, like D&O. We're in the process of that renewal. Here too, it's line of coverage specific whereby you had securities class action frequency in 2017 and 2018 and 2019 was record setting. That came through in losses for the industry. Securities class action litigation has trended down significantly since 2019.
It will depend a lot on how reinsurers look at that. When you talk about umbrella liability or when you talk about a specific line of coverage like D&O, where there is a ceding commission, it is also accurate to say that in addition to reinsurers looking for rate, they may try to get that rate by reducing ceding commission as well.
Got it. Well, thank you very much for the thorough answer. That's it.
Thank you, Greg.
There are no further questions. At this time, we'll turn it over to management for any closing remarks.
Okay. Well, thank you everyone for your interest and the analysts for their questions. Much appreciated. As I said at the beginning of our discussion today, we're looking forward to celebrating Old Republic's 100-year anniversary with all of you. And we hope that 2023 will be as successful of a year for us as the last several years have been. Thank you very much, and we will talk with you all again next quarter.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.