Old Republic: A Well-Run Insurer Paying Uninterrupted Dividends Since 1942
Founded in 1923, Old Republic International offers a wide variety of insurance policies provided by dozens of decentralized businesses it has grown or acquired over the years.
The firm generates roughly half its revenue from specialty lines, including commercial trucking insurance, worker's compensation policies, auto and home warranties, inland marine insurance for in-transit property, and other niches.
Title insurance accounts for the remainder of Old Republic's business. This coverage protects real estate buyers and mortgage lenders from damages if the seller does not have free and clear ownership of the property.
The insurance business is distinguished from most others in that the prices (premiums) charged for various insurance products are set without certainty of the ultimate claim costs that will emerge, often many years after the policy is issued.
Therefore, insurers must focus on maintaining pricing discipline and strong balance sheets over cycles to ensure they can meet their long-term obligations to policyholders. However, this can be challenging since the commodity-like nature of insurance policies can result in firms competing primarily on price.
So, while insurance services are necessary and often mandated in the sectors served by Old Republic, this is a cutthroat industry where long-term success is all about risk management.
Old Republic has excelled at running its business conservatively over time, outlasting many of its rivals and rewarding investors with uninterrupted dividends since 1942 and higher dividends each year going back to 1982.
The firm's longevity is part of its secret to success. Most of Old Republic's core subsidiaries have been in business for around a century or longer.
The longer an insurance firm operates in specific coverage areas and industries, the more actuarial data it accumulates. This helps an insurer better predict future policy claims and set prices at levels that generate more stable profits.
In fact, the firm's commercial lines division (over half of its revenues) has recorded higher profitability than the industry average for over 40 of the last 50 years.
These results also reflect Old Republic's focus on specialty niches where pricing knowledge is more rewarded and customer service can act as an important differentiator. The firm also has minimal property catastrophe exposure within the business it underwrites, reducing the risk of major losses.
Old Republic's earnings stream also benefits from the complementary nature of its title insurance business. Unlike general insurance, title insurers collect the entire premium upfront when a property is sold, and losses tend to be minimal, reducing capital intensity and underwriting volatility.
Further strengthening the company's risk profile, management runs the business with low leverage and healthy capital levels, earning Old Republic a BBB+ credit rating.
Overall, Old Republic is a company managed conservatively for the long run. The firm may generate slow dividend growth, but the time-tested insurer could be a reasonable bet for investors comfortable with this cyclical industry.
The firm generates roughly half its revenue from specialty lines, including commercial trucking insurance, worker's compensation policies, auto and home warranties, inland marine insurance for in-transit property, and other niches.
Title insurance accounts for the remainder of Old Republic's business. This coverage protects real estate buyers and mortgage lenders from damages if the seller does not have free and clear ownership of the property.
The insurance business is distinguished from most others in that the prices (premiums) charged for various insurance products are set without certainty of the ultimate claim costs that will emerge, often many years after the policy is issued.
Therefore, insurers must focus on maintaining pricing discipline and strong balance sheets over cycles to ensure they can meet their long-term obligations to policyholders. However, this can be challenging since the commodity-like nature of insurance policies can result in firms competing primarily on price.
So, while insurance services are necessary and often mandated in the sectors served by Old Republic, this is a cutthroat industry where long-term success is all about risk management.
Old Republic has excelled at running its business conservatively over time, outlasting many of its rivals and rewarding investors with uninterrupted dividends since 1942 and higher dividends each year going back to 1982.
The firm's longevity is part of its secret to success. Most of Old Republic's core subsidiaries have been in business for around a century or longer.
The longer an insurance firm operates in specific coverage areas and industries, the more actuarial data it accumulates. This helps an insurer better predict future policy claims and set prices at levels that generate more stable profits.
In fact, the firm's commercial lines division (over half of its revenues) has recorded higher profitability than the industry average for over 40 of the last 50 years.
These results also reflect Old Republic's focus on specialty niches where pricing knowledge is more rewarded and customer service can act as an important differentiator. The firm also has minimal property catastrophe exposure within the business it underwrites, reducing the risk of major losses.
Old Republic's earnings stream also benefits from the complementary nature of its title insurance business. Unlike general insurance, title insurers collect the entire premium upfront when a property is sold, and losses tend to be minimal, reducing capital intensity and underwriting volatility.
Further strengthening the company's risk profile, management runs the business with low leverage and healthy capital levels, earning Old Republic a BBB+ credit rating.
Overall, Old Republic is a company managed conservatively for the long run. The firm may generate slow dividend growth, but the time-tested insurer could be a reasonable bet for investors comfortable with this cyclical industry.
