Prepared remarks
Well, good day, everyone, and welcome to the Old Republic International Second Quarter Earnings Conference Call. I would now like to hand the call over to Mr. Joe Calabrese. Please go ahead, sir.
Thank you, Lisa. Good afternoon, everyone. And thank you for joining us for the Old Republic Conference Call to discuss second quarter 2026 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 oldrepublic.com. Please be advised that this call may involve forward-looking statements as discussed in the press release dated July 23, 2026. Assumptions, uncertainties and risks exist that may cause results to differ materially from those set forth in these forward-looking statements. For more information on these assumptions, uncertainties and risks, please refer to the forward-looking statement discussions in the press release and the company's other recent SEC filings, and the risk factors discussed in the company's most recent Form 10-K and other recent SEC filings. We also may include references to net income excluding net investment gains, or net operating income, a non-GAAP financial measure. In our remarks and in responses to questions, GAAP reconciliations are included in the press release. Presenting on today's conference call will be Craig Richard Smiddy, President and Chief Executive Officer; Frank Sodaro, Chief Financial Officer; and Carolyn Jean Monroe, President and Chief Executive Officer of Old National Title Insurance Group. Management will make some opening remarks, and then we will open the line for your questions. At this time, I would like to turn the call over to Craig. Please go ahead, sir.
Okay, Joe. Thank you, and good afternoon, everyone, and welcome again to Old Republic's second quarter 2026 earnings call. In the quarter, we produced $238 million of consolidated pre-tax operating income and that compares to $268 million. Our consolidated combined ratio was 95.3% and that compares to 93.6%. Our annualized operating return on beginning equity stands at 12.1%. And for the first six months of the year, growth in book value per share, including dividends, stands at 7.2%. Specialty insurance grew net premiums earned by 2.3% over the second quarter of 2025, and produced $199 million of pretax operating income compared to $254 million. Specialty's combined ratio was 95.5% compared to 90.7%. In title insurance, we grew premiums and fees by 10% over the second quarter of 2025 and produced $56 million of pretax operating income compared to $24 million. Title's combined ratio was 95.1% compared to 99%. We saw some slight unfavorable prior year loss reserve development in specialty insurance and consistent favorable prior year development in title insurance. Frank will provide more details on that topic. So I will turn the discussion over to Frank, and then Frank will turn things back to me to cover specialty insurance followed by Carolyn who will discuss title insurance. Frank, it is all yours.
Thank you, Craig, and good afternoon, everyone. This morning, we reported net operating income of $186 million for the quarter, compared to $209 million last year. On a per share basis, comparable quarter-over-quarter results were $0.76 compared to $0.83. Starting with investments, net investment income increased just over 6.0% in the quarter primarily as a result of a larger investment base from strong operating results and our debt issuance that took place in May. Our average rate on corporate bonds acquired during the quarter was 4.90% compared to the average yield rolling off of about 4.20%. The total bond portfolio book yield ended the quarter at 4.80%, which was a slight increase from year end. Turning now to loss reserves. Overall in the quarter, the consolidated combined ratio benefited slightly from favorable development compared to 2.1 points of benefit last year. This was a result of favorable development from title insurance being partially offset by unfavorable development from specialty insurance. While the primary lines of coverage for specialty insurance performed well, its runoff transactional risk business had poor claims experience, which led to reserve strengthening of $40 million in the quarter. As a reminder, we decided to place this business in runoff in 2024. As for the other specialty coverages, property and commercial auto had significant favorable development and both came in at levels higher than last year. Workers' compensation had favorable development that was considerably lower than the large amount of favorable development experienced last year, and general liability had a moderate level of unfavorable development. We ended the quarter with book value per share of $25.33, which, inclusive of regular dividends, represented an increase of 7.2% since year end. This increase resulted primarily from solid operating earnings and higher investment valuations. In the quarter, we paid nearly $77 million in dividends and repurchased $61 million worth of our shares, leaving us with about $640 million remaining in our current repurchase program. Finally, as a precursor to next quarter, we expect to report a bargain purchase gain on the ECM acquisition and for ECM's results to be accretive to earnings and book value this year. To put it into perspective, ECM reported direct premiums written in 2025 of just under $220 million, and they ended that year with GAAP equity estimated at $145 million. I will now turn the call back over to Craig for a discussion of specialty insurance.
Okay, Frank. Thank you. Specialty insurance net premiums written were up 1.6% in the quarter after excluding some noise from the write-up to retail premium on the auto warranty business written in our auto warranty operating company. We saw strong rate increases on commercial auto and in general liability. Our overall retention ratios were consistent with what we saw in the first quarter. As I mentioned in my opening remarks, in the quarter, specialty insurance pretax operating income was $199 million, while the combined ratio was 95.5%. The loss ratio for the quarter was 65.9%, which included 0.3 percentage points of unfavorable prior year loss reserve development compared to 62.5% in the second quarter last year, which included 2.9 percentage points of favorable development. Turning to the expense ratio for the quarter: it was 29.6% compared to 28.2% in the second quarter last year. As we have talked about for a few quarters, our continued investments in the new specialty operating companies, technology modernization, data analytics, and AI account for most of that difference in the expense ratio from last year to this year. Looking specifically at commercial auto, commercial auto net premiums written were up 3.6% in the quarter while the loss ratio came in at 69.4%, which is about 1 percentage point better than the second quarter last year. That improvement came from a higher level of favorable prior year loss reserve development partially offset by a more conservative current accident year loss ratio. Rate increases in commercial auto were in the high teens, a bit higher than the first quarter, and they were greater than the current loss trends we are observing. Commercial auto retention ratios also improved in the quarter, as competitors started to catch up with implementing higher rate increases in response to higher loss trends. Turning to workers' compensation, net premiums written were 8.4% lower in the quarter while the loss ratio came in at 60.6% compared to 48.5% in the second quarter last year, with most of that difference due to the higher level of favorable prior year loss reserve development last year. We were able to hold rates flat in the quarter and severity loss trends remained consistent, while frequency loss trends continue to decline. While we are seeing some top-line pressure stemming from a generally competitive marketplace, we remain very focused on risk-adequate rates that will continue to produce profitable combined ratios. We also expect to see continuing growth in top-line contributions from our newer specialty operating companies and the ECM acquisition should contribute to top line and bottom line in the second half of the year, as Frank mentioned. We already held a town hall with all of the ECM employees, and we would like to take this opportunity to again welcome ECM to the Old Republic family.
Thank you, Craig, and good afternoon, everyone. Title reported premium and fee revenue for the quarter of $773 million. This represents an increase of 11% from the second quarter of 2025. After a slow seasonal start, residential transactions improved a bit this quarter, contributing to our revenue growth as well as strong commercial activity. Premiums produced in our direct title operations were up 9% from the second quarter of last year, and agency-produced premiums were up 12%. Agency made up 78% of our revenue during the quarter, up from 77% during the same quarter of last year. Commercial premiums increased this quarter and were 25% of our premiums earned compared to 23% in the second quarter of last year. During the quarter, we saw a wide mix of transactions across many segments of the commercial sector. Our loss ratio remained consistent this year compared to last year, reflecting our consistent and conservative reserving practices. Our expense ratio improved by 4 percentage points to 92.1% from 96.1% in the second quarter of 2025. About 2 points of this improvement relate to a one-time litigation settlement expense that we disclosed in the second quarter of 2025. The rest of the improvement was driven by continued focus on operational efficiency, expense management, and the benefits of higher transaction volumes, slightly offset by higher agent commissions due to a greater weighting of agency business relative to direct. Overall, the quarter's combined ratio was 95.1%. This brought our year-to-date combined ratio down to 97.4% as we continue to make progress towards driving our combined ratio below 95%. Investment income was up this quarter by 6% compared to the second quarter of 2025, reflecting steady investment yields earned on a slightly higher invested asset base. All these items produced pretax operating income for the quarter of $56 million, up from $24 million in the second quarter of last year. As we move into the second half of 2026, we remain focused on improving operational efficiency and expanding our margins. A key part of that effort is our partnership with Qualia and the continued rollout of our new operating system. Implementation began earlier this year and will continue through the end of next year, strengthening our foundation for long-term success. I will turn it back to Craig now.
Okay, Carolyn. Thank you. So while we are seeing some top-line pressure in specialty insurance, we continue to focus on bottom-line combined ratios. The fundamentals in specialty remain strong. In title insurance, we continue to grow with some help from the real estate market, and title's combined ratio continues to improve and that is in no small part because of Carolyn's leadership in driving operational efficiencies and cost savings. So thank you for that, Carolyn. With that, we are happy to answer any questions, and either I will answer your question or I will ask Frank or Carolyn to respond.
Questions and answers
Thank you, sir. And once again, if you have a question, please press 1. The first question comes from Gregory Peters from Raymond James.
Hey, good afternoon. With the companies that have reported so far, there has been a number of comments about increasing intensity of price competition in the marketplace. Certainly, you commented on that as well. I'd like to zero in on some of the startup new operating companies and how they are faring in an environment which presumably is more competitive. Particularly, I'm thinking about the E&S business and the property business, which are areas that have been highlighted by others as having some pretty dramatic price decreases.
I would be happy to comment on that. I think you are right. From everything that I have seen as well, most of the discussion centers around property, and particularly catastrophe-exposed property. As you know, catastrophe-exposed property is not a big portion of our portfolio. When it comes to property rates for us, they have not seen the type of decrease that others have perhaps seen. In total property, we were down about 7.5% in rate. As to the newer entities, Old Republic Property has not begun to write premium and their marching orders are to build the platform, to build it right, and there is no incentive whatsoever in the first three years to put any premium on the books. So we are not impacted at all because they are not yet writing premium. Perhaps the timing will be better by the time they are operational. In E&S, we are not focused on catastrophic E&S type of business and are writing mostly package types of business, and we are able to maintain property rates there much more so than the marketplace is on catastrophic business. Generally, that goes for our other companies as well that are writing property; they are writing it with other lines of coverage and not seeing a big drop off in rate like you are seeing on property catastrophe business.
Pivoting to the expense side, your expense ratio as you previewed last quarter is trending higher this year due to investments. Could you spend a second and talk to us about how you are measuring the ROI on those investments in technology and what the benchmarks are in terms of whether they are going to yield the success you are hoping for?
Sure. When it comes to the expense ratio this quarter compared to last year, about a full percentage point of that is being driven by IT systems and investments in data and analytics and AI. As for ROI, we have already experienced benefits, even in title, especially with our Qualia partnership, where we are able to drive out significant amounts of hours to produce transactions with the use of modern technology that is AI-enabled. There is no question that we have to make these investments in AI. In order to leverage AI, you have to have data and analytics. In order to have good data and analytics, you have to have modern IT systems. Some of the investments we are making in IT systems are replacements we simply must do; they are operating on mainframe platforms that we need to modernize. We have seen that leveraging data and analytics allows us to perfect pricing to a much greater degree and to manage claims and losses more effectively. To leverage the rapid environment of AI, you have to layer it on top of data, analytics, and modern systems. That is how we are looking at it.
Pivoting to the title business, watching with interest the growth in your commercial book: can you give us a sense of how that is looking for the balance of the year, especially in the context of big data center and infrastructure projects?
Carolyn, I will let you speak to that one if you would.
Sure. Gregory, we really expect to see commercial continue as it has already this year. Data centers are pretty big, but with data centers it takes all the title companies; we are all on those projects and we each have a piece of them. What we are seeing from a lot of our agents is a real mix of other industrial projects, hospitality, and various commercial segments. That mix gives us reason to believe this will continue through the end of the year, since it is not just one thing that is driving activity right now.
Next up is Paul Newsome with Piper Sandler.
Thanks for the call. A couple of questions. Looking at the reserves a little bit: you noted that you had releases in commercial auto, but you also had a higher accident year. Could you parse that so we know how that would work in terms of the overall reserves?
Yeah, sure. At the end of last year, we raised the 2025 accident year loss pick in the fourth quarter even though we were getting favorable prior year development because of our conservative approach. We saw loss severity trends, specifically through our case reserves, increasing, so we took a conservative view and raised the 2025 accident year. Going into 2026, we took the same approach and put up a bit of a higher accident year loss pick for 2026 because we saw those trends emerging at the end of the year. As you know, we hold our loss picks once we put them up for two or three years on commercial auto, and even longer on workers' comp and general liability. The prior years are developing favorably, indicating the picks we put up are coming in line with our expectations and on average produce a couple points of favorable prior year loss reserve development.
On capital management and the cadence of stock repurchases: it looks like you may have paused a little bit after April. Anything to read into that or how should we think about the pace of stock repurchases and other capital management efforts?
We are still looking at share repurchases as a way to return capital to shareholders and we are still in the process of repurchasing shares. Throughout the year, we'd expect to continue to do that. We are opportunistic: we look at where we are trading and we are mindful of being dilutive to book value per share when we make those repurchases. Opportunistically, we will continue to make repurchases with those factors in mind. As always, toward year end we look at where our capital position is and if we believe we have excess capital, we will still consider issuing a special dividend.
Paul, the only thing I would add is this quarter had a nuance in that we were issuing shares related to the ECM acquisition, so we were staying out of the market while that was taking place. That was another wrinkle in the quarter.
Regarding ECM, as we think about modeling it prospectively, will it have a different underwriting profile either from a pure underwriting profitability perspective than the rest of the specialty business? Any nuances about expense ratio and loss ratio that we should be mindful of once ECM is included with the rest of the specialty operations?
Paul, Frank mentioned the direct written premium of about $220 million last year. ECM has the same combined ratio targets that we have for every one of our companies, which is somewhere between 90 and 95. I can tell you that the first two quarters of this year they have produced very strong combined ratios, stronger than the prior year. Our expectation is that ECM will produce combined ratios between 90 and 95 over time. As far as overall growth, they had a quota share in place, so their net premiums were a lot less than direct, which is why we mentioned the direct premiums. We are currently working on including ECM into our corporate treaties and we eliminated the external quota share effective July 1st. Hopefully that gives you some color on how we are thinking about ECM for top line and bottom line.
That is great. Appreciate the help as always. Thank you.
Up next is Matt Carletti from JMP Securities.
Thanks. Good afternoon. Since we last spoke, the Supreme Court issued an opinion on liability for freight brokers. I believe Great West at least has some business there. Could you shed a little color on the impact that case might have on that market and how big, if any, it is for Great West and what you are seeing there?
The ruling puts more burden on freight brokers and they therefore have more liability exposure than they did in the past. We insure the truckers, long-haul truckers, not the freight brokers. To the extent freight brokers try to work with higher-quality companies given their new liability exposure, we think that could bode well for us. The truckers and companies in the Great West portfolio are higher caliber, and freight brokers trying to work with insureds that look more like our insureds could be a positive development. On the flip side, freight brokers will try to transfer as much liability as they can, but for us, it is not the freight brokers that we are insuring.
A numbers question: you touched a bit on the auto warranty benefit in the quarter and the markup to retail, which if I am doing the math right was maybe 7 points of growth in specialty, $90 million to $95 million. Should we expect that to repeat? Is it seasonal in Q2, or should we expect ongoing impact in future quarters?
Yes, you should expect it to continue and that is good news. We have a couple of large significant partnerships that we are growing with, and that is why we tried to take out some of the noise around that growth in our commentary. We did not want to overstate growth in net written premiums because of that nuance with that business. Auto warranty, as you can tell from our supplement, performs very well for us. It is a business that, with the ability to increase scale as we grow, will be a very profitable segment for us. It will create a little bit of noise in the numbers, and we are having discussions about how to be as transparent as possible on that business and not confuse the numbers with its inclusion, but it will continue.
Got it. That is very helpful. Thank you very much.
As a reminder, if you have a question today, please press 1. We will pause for just a moment. At this time, no one else has signaled. I will hand the conference back to management for additional or closing remarks.
Okay. Well, just in very brief closing, we want to thank everybody for participating. We want to wish everybody a happy summer, and we feel good about the prospects for the third and fourth quarters this year. As I said, fundamentals are very solid in specialty insurance and prospects are looking brighter in title insurance. We will see you back here after the third quarter and update you again. Thank you very much.
Once again, ladies and gentlemen, that does conclude today's conference. Thank you all for your participation. You may now disconnect.