Like its other Big Four counterparts, the first quarter of 2023 did not produce great financial results for Old Republic.
“As we started adjusting to the normal seasonal real estate markets, or which the first quarter has traditionally been the slowest, the continual rapid rise of interest rates couple with tight inventory certainly contributed to the softer market,” Carolyn Monroe, the president of the firm’s title segment, told investors and analyst’s during Old Republics first-quarter earnings call Thursday afternoon.
For Old Republic, the softer market results in total revenue falling from $2.207 billion in Q1 2022 to $1.759 billion in Q1 2023. In addition, the firm’s net income fell to $199.8 million, compared to $306.3 million a year ago.
Old Republic’s title segment also struggled with net premiums and fees earned during the quarter dropping 41.6% year over year to $583.2 million, the result of lower revenues in both direct and agency title operations. The title segment also saw its pretax operating income fall from $81 million during the first quarter of 2022 to $17 million in the first quarter of this year.
With the weaker financial results, Monroe expressed gratitude that “a large portion” of Old Republic’s expense are variable in nature and “highly correlated with [its] top line revenue.”
According to Monroe, the largest fixed portion of the firm’s expenses is personnel related, something she said the firm plans to monitor and make “the appropriate long-term decision” on.
Due to the decrease in the number of residential transactions in Q1, commercial real estate premiums made up 25% of all premiums, compared to 20% a year prior. However, commercial volume was still down 24% year over year.
Looking ahead, Monroe was cautiously optimistic about the housing market outlook for the rest of the year but warned listeners to continue tempering their expectations.
“Last quarter, we had hoped that when we got into the second quarter, we would see more improvement than we are seeing now,” Monroe said. “The challenges with consumer confidence and the uncertainty surrounding the mortgage rates are large and looking at the MBA and Fannie Mae forecasts, they are forecasting as we get toward the end of the year and then on into 2024, some improvement, but I just don’t feel like we are going to see a lot of improvement in the second quarter like we had hoped.”
Despite the lowered expectations, Craig Smiddy, the firm’s CEO, maintains a positive outlook for the future of his firm.
“We are a diversified specialty insurance company and that diversification served us well this quarter with continued profitable growth in general insurance helping to mitigate the lower profits in title insurance,” Smiddy said.
