While other “big four” title insurers discussed the “transitional period” in the housing market during their first quarter 2022 earnings calls with investors, Old Republic International Corp.’s president and CEO, Craig Smiddy decided to take a bolder stance.
“I think the way we are looking at refinancing activity right now, is that it is dried up and we don’t expect that to rebound,” Smiddy said on the call. “We don’t think refinancing activity is going to be any kind of significant contributor this year.”
Although Smiddy acknowledged that refinance volumes had certainly given Old Republic a boost over the past couple of years, he believes that refinance transactions were not what the firm is built on.
“Refis were never really our bread and butter,” he said. “They’ve been great the last couple of years, bit if you go back to 2019 and before, those weren’t thing that we depended strongly on because of who our agents are.”
During the first quarter of 2022, Old Republic generated a total revenue of $2 billion, up slightly from $1.98 billion a year prior and a net income of $382.6 million down from the $630.6 million the firm recorded during the first quarter of 2021. On the investor call, executives acknowledged that the decline compared to 2021 was within their expectations due to the impact of rising mortgage rates on the firm’s title insurance segment.
As expected, the firm’s title insurance segment did not have the greatest quarter. While net premiums and fees earned increased 3.2% to $998.9 million, rising expenses resulted in a 21.9% year-over-year decrease in pretax operating income, which came in a $80.9 million, down from $103.7 million a year ago. According to Old Republic Title president Carolyn Monroe, the slight revenue increase versus the decline in operating income can be attributed to differences in the firm’s direct versus agency production channels.
“During the first quarter of 2022, agency revenue was 8% higher than the first quarter of 2021, while direct revenue was 12% lower than the prior period,” Monroe said. “The drop in directly produced revenue which has higher fixed expenses along with a greater proportion of agency produce revenues that have a higher expense ratio. Comparable revenue percentage changes for both direct and agency have steadily decreased from their high level marks reached during the second quarter of 2021 albeit with a more pronounced impact for direct operations, with agencies still aided by the approximate one quarter agency reporting lag.”
Like Smiddy, Monroe noted the impact rising mortgage rates had on the firm’s refinance volume. Purchase order levels, however remained roughly in line with the prior period due to strong housing prices, but Monroe acknowledged that rising mortgage rates could also impact purchase activity throughout the year.
Toward the end of the call Greg Peters of Raymond James asked the Old Republic executives to share their thoughts on Fannie Mae’s recent announcement that the GSE would accepted an attorney title opinion letter in lieu of title insurance under certain circumstances. While they thought it an interesting concept, the Old Republic executives did not seem concerned about the potential impact this announcement could have on their title insurance operation.
“We don’t expect it to have any material impact on our business,” Smiddy said. “Where we think there may be some conflicts is with the attorneys providing opinions in meeting all of Fannie Mae’s requirements and the various state laws relating to title insurance, which could be challenged on a state by state basis. Lastly, in our opinion, attorney opinions as opposed to title insurance appear to be lacking. They don’t address all the risks.”
Although this was not yet another record breaking quarter for Old Republic, the nearly 100-year-old firm did not seem too stressed by it.
“The Company is managed for the long run and with little regard for quarterly or even annual reporting periods,” a press release said. “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.”
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