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Old Republic International Corp (ORI) Q1 2021 Earnings Call Transcript

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Old Republic International Corp (NYSE: ORI)
Q1 2021 Earnings Call
Apr 22, 2021, 3:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and thank you for standing by. Welcome to the Old Republic International First Quarter 2021 Earnings Conference Call. [Operator Instructions] After the speaker's presentation, there will be a question-and-answer session. [Operator Instructions]

I'll be now [Phonetic] giving the conference over to your speaker today, Joe Calabrese with MWW Group. Thank you. Please go ahead.

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Joe Calabrese -- Senior Vice President at Financial Relations Board

Thank you. Good afternoon, everyone, and thank you for joining us for the Old Republic conference call to discuss first quarter 2021 results. This morning, we distributed a copy of the press release and posted a separate statistical 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 statistical supplements dated April 22, 2020. 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 Smiddyori, President and CEO of Old Republic International Corporation; and several other senior executive members as planned for this meeting.

At this time, I'd like to turn the call over to Craig Smiddyori. Please go ahead, sir.

Craig R. Smiddyori -- President and Chief Executive Officer

Okay. Thank you, Joe. Well, good afternoon, everyone, and welcome again to Old Republic's First Quarter 2021 Earnings Call. With me today, we have our CFO, Karl Muellerori, and we have Carolyn Monroe, the President of our Title Insurance Group.

So we're here again with another great quarter that we're very happy with. Exceptional performance in both General Insurance and Title Insurance drove the strong consolidated results we posted for the first quarter. Total net premium and fees increased to $1.84 billion in the quarter, up 18% with consolidated pre-tax operating income of $255 million, up 47%, and a consolidated combined ratio that was 4.2 percentage points lower for the quarter coming in at a 90.9%.

In General Insurance, we saw a slight growth in premium. Relative to the first quarter of 2021, premiums were not yet impacted by the effects of the pandemic. And in Title Insurance, we grew premiums and fees by 40% and that was on top of a record-setting first quarter in 2020. So as demonstrated in the strong results, our specialty strategy continues to produce growth and profitability and our diverse portfolio of specialty products in both General Insurance and Title Insurance has again delivered value to our shareholders.

So with that, I'll turn the discussion over to Karl to discuss some of the per-share figures along with some added color on our investment portfolio, then he'll turn things back to me to cover General Insurance, and that will follow by Carolyn, who will discuss the Title Insurance and then, of course, we'll open up to Q&A. So, Karl, would you go ahead and take it from here?

Karl W. Muellerori -- Senior Vice President and Chief Financial Officer

Thank you, Craig, and good afternoon. This morning we announced first quarter net income, excluding all investment gains and losses of $206 million or $0.69 per diluted share, which is a 47% increase compared to last year's first quarter. Additionally, shareholders' equity rose to $6.45 billion and book value per share grew to $21.59, that's about a 5.1% increase for the quarter inclusive of all regular dividends.

So now, let me briefly address a couple of key elements regarding Old Republic's financial condition. First of all, relative to investments, we did not make any fundamental change to our investment strategy during the first quarter this year and at this point, don't anticipate any material shifts in policy in the near term. The investment portfolio at March 31st, consisted of approximately 72% that were directed toward highly rated bonds and short-term investments with the remaining 28% allocated to large-cap stocks that have a long history of paying and increasing their dividend distributions.

The valuation of the equity portfolio improved by $367 million during final -- first quarter, excuse me, and ended March with an unrealized gain of $1.15 billion. Net investment income actually decreased by 8.6% for the quarter as the impact of lower yields on new investment purchases more than offset a modest increase in the invested asset base.

The average maturity on the bond portfolio remained consistent at approximately four years and the average book yield declined slightly at the end of the quarter to 2.6%. New money was invested at yields just below 2% during the quarter, putting downward pressure on net investment income that is likely to persist throughout the remainder of 2021.

Turning now to the liability side of the balance sheet. Claim reserves grew to $10.8 billion at the end of March and were affected by lower paid loss trends due to the pandemic. All three segments recognized favorable claim reserve development for the quarter and in total, the consolidated claim ratios benefited by 1.8 percentage points for this year's first quarter by comparison to 0.8% a year ago.

And then finally, with respect to our mortgage run-off operation, there is really nothing particularly noteworthy this quarter other than to point out that we did in fact resume dividend payments following last year's temporary suspension of capital return. During this first quarter, the business received approval from our regulators and paid a $25 million dividend to our parent company. So at the end of March, our mortgage company's GAAP shareholders' equity totaled $435 million.

So that is the highlighted and with that, I'm going to turn things back to Craig to dive into the General Insurance group.

Craig R. Smiddyori -- President and Chief Executive Officer

All right. Well, turning to General Insurance, net premiums written increased in the first quarter that followed increases in the third and fourth quarters of last year and we also saw net premiums earned start to increase again in the first quarter. Compared to the first quarter of 2020, pre-tax operating income rose by almost 28% primarily from our improved claim ratios.

The overall combined ratio for the General Insurance group improved 4 percentage points from 95.6% to 91.6% quarter-over-quarter. The claim ratios reported were of course inclusive of favorable prior period development which was 2.7 percentage point in this quarter compared to favorable development of 0.7 percentage points in the first quarter of 2020. Net premiums written into commercial auto grew by 8% with positive effect from continued rate increases in the auto liability line and those were rate increases in the 15% range. And that comes along with a growing exposure base in recent quarters as well.

Our first quarter commercial auto claim ratio improved at 73.8% compared to 77% in the first quarter of 2020. Claim frequency is still lower than pre-pandemic levels but continues to be offset by higher severity due to greater speed than continued pressure on settlement values.

Turning to workers' compensation. Net premiums written and earned were 15% lower when compared to the first quarter of 2020 where premiums were not yet influenced by the effects of the pandemic. Slight premium rate increases continued this quarter on the workers' compensation line. The workers' comp first quarter claim ratio came in at 56% compared to 71% in the first quarter of 2020, and non-COVID related claim frequency remains lower than it was at pre-pandemic levels. As we talked about in prior quarters, the impact of COVID-19 workers' compensation claims remains insignificant with about 95% of the COVID-19 workers' comp claims coming from loss-sensitive business and greater than 95% of the COVID claims continuing to be mild. And I can also report that newly reported claims, dropped significantly over the course of the first quarter.

As most of you know, we typically provide commercial auto workers' comp and general liability together in our product offering and this combined claim ratio came in at 69.2% compared to 74.1% in last year's first quarter. The financial indemnity lines, property line, and our other coverage category, those claim ratios remained very healthy and very steady when you look at quarter-over-quarter results.

So in General Insurance, we continue with our strategy to enhance underwriting excellence through better segmentation, improved risk selection, pricing precision, increased use of analytics along with our focus on providing loss-sensitive programs. This -- we believe this strategy will continue to facilitate strong underwriting profitability, which we believe is even more important now in order to offset the declining investment income that we just spoke about. And the good news is, the marketplace remains favorable for us to continue to obtain appropriate prices for our products while maintaining high retention ratios.

So, I'll now turn the discussion over to Carolyn who along with the rest of her team in the Title Insurance group continue to knock the cover off the ball. So, Carolyn, I'll turn it to you.

Carolyn Monroe -- President, Title Insurance Group

Thank you, Craig, and good afternoon, everyone. The Title Group is pleased to report record-setting first-quarter results for both operating revenue and operating profit. Our employees continue to effectively balance the challenges, although improving the in-person commerce with the opportunities provided by the current U.S. mortgage origination market.

Total premium and fee revenue for the quarter was just shy of $1 billion at $967 million, up approximately 40% from the comparable prior period. This was achieved through the contributions of both our agency and direct operations. For the quarter, agency premiums, which are typically recorded on about a one-quarter lag compared to our direct premiums, were up nearly 43%. And premium and fees from our direct operations were up around 32%. Our pre-tax operating income of $103 million for the quarter compared to $43 million in last year's first quarter. An increase of $60 million or 139%. The combined ratio of 90.3% for the quarter represents around a 5% improvement over last year's first quarter combined ratio of 95.1%.

Having begun the year with a solid foundation, we remain optimistic for the remainder of the year. Mortgage rates are expected to remain near historic lows throughout 2021 providing a catalyst for continued robust real estate market. Although refinance transactions are projected to drop over 35%, this is in comparison to 2020's record-setting volume, and relatively speaking, will still be at a healthy level. To offset the refinance drop, purchase money transactions are forecast to be up around 16%. Of course, this is good for our business as home sales offer greater opportunities for premiums and fees.

As always, we will move forward with our guiding principles of integrity, managing for the long run, financial strength, protection of our policyholders, and the well-being of our employees and customers with an added emphasis of appreciation for our employees, their dedication, ingenuity, and positive attitudes.

And with that, I will turn the call back over to Craig.

Craig R. Smiddyori -- President and Chief Executive Officer

All right, Carolyn, congratulations again. Well, again, we're very pleased with this quarter's operating results. Our strategy of providing specialty insurance and related specialty products to core industry served by General Insurance and Title Insurance continues to produce strong results for our shareholders.

So that concludes our prepared remarks and we'll now open up the discussion to Q&A, where I'll answer your question or I'll ask Karl or Carolyn to respond.

Questions and Answers:

Operator

[Operator Instructions] Your first question comes from Matt Carletti from JMP.

Matt Carletti -- JMP Securities LLC -- Analyst

Hey, thanks. Good afternoon.

Craig R. Smiddyori -- President and Chief Executive Officer

Hello, Matt.

Matt Carletti -- JMP Securities LLC -- Analyst

Hello. Okay, I got a few questions. Maybe, Craig, I'll start with your general liability and workers' comp color that you gave. I'm trying to help understand the exposure impacts from COVID and so, is it possible for you to, even in rough numbers, break apart the reduction we saw on premiums in the quarter. I mean obviously, there is retention, there is new business production, there's pricing and then, there's exposure. So how should we think about that in terms of the exposure piece versus the other items?

Craig R. Smiddyori -- President and Chief Executive Officer

Sure. So if you look at workers' compensation relative to the last few quarters, the exposures have begun to recover. So said differently, the decline in the fourth quarter over the prior year was greater than the decline is this quarter over again the first quarter of '20 when there wasn't any really reflection of the impact from COVID.

So we would expect that beginning in the second quarter, especially when we're going to start comparing premiums to -- premiums in 2020 that were in fact impacted, then the shift should be considerable. But what we saw in the first quarter was just simply a continuation with some improvement and exposure over where we were in the last three quarters of 2020. And with regard to rate, it's very slight. I think your assumption can be just that there is a slight rate increase that we reported on in the fourth quarter and it was about the same in this quarter.

Matt Carletti -- JMP Securities LLC -- Analyst

Okay, and then my next question, I want to switch to Title for a second. I think in the past, maybe as recent as last quarter, I can't recall, you've touched on the idea of making the technology investments and along those lines. I was hoping you might be able to expand on that a little bit just in terms of some of the --which areas, in particular, whether it's underwriting or more kind of interfacing with the agents and then what you might be planning on doing in the Title business on the technology front.

Craig R. Smiddyori -- President and Chief Executive Officer

Sure. Carolyn, would you please address that?

Carolyn Monroe -- President, Title Insurance Group

Sure. So it's -- we kind of have a two-prong approach. We're working on things that speed up processes that -- just so that we can provide better service to our customers and our agents. And we're also working on things that will help our agents have better connectivity to things out there that would start coming on the market so that they only have to -- might go to one place to be able to connect out to other technology that would benefit them. So we're sort of working on all of it if the truth are known. I mean it's something you have to continually evolve around and focus on.

Matt Carletti -- JMP Securities LLC -- Analyst

Great, thank you. And then last one, if I could, just a broader company question. Can you talk a little bit about the capital and specifically are there tangible benefits to kind of having diversified businesses at Old Republic in terms of General Insurance and Title and MIs and run-off or are they kind of on a stand-alone basis and you should think them more like Independent under a holding company from a capital standpoint?

Craig R. Smiddyori -- President and Chief Executive Officer

Well, Matt, I would point you to the comments that we made in our March 31st Annual Report letter, and in that letter, we talked about the fact that General Insurance and Title Insurance are very complementary under the ORI umbrella and there's a large amount of synergies with regard to the specialized insurance underwriting approach and products and services that Title and General Insurance both focus on that are keys to our strategy. And included in the enterprise risk management attributes of having General Insurance and Title Insurance together as we point out in that letter, we believe the businesses are countercyclical, there's -- they're -- it's important to our tax planning strategies as well as our capital management allocations.

And you may have seen the press release yesterday from AM Best whereby they make similar comments when they affirmed the ratings in our General Insurance group and increased the ratings in our Title Insurance group pointing to the strategic position and importance of Title in our Old Republic International family and being integral to the overall organization with common branding and talent synergies as well. So I would just leave it at that and tell you that all of those things we said in that March 31st letter are how we believe the two businesses fit underneath the Old Republic International umbrella.

Matt Carletti -- JMP Securities LLC -- Analyst

Great, thank you for all the answers. Best of luck.

Operator

[Operator Instructions] Your next question comes from Greg Peters from Raymond James.

Gregory Peters -- Raymond James Financial -- Analyst

Good afternoon. It's interesting you must have switched locations because usually during the course of your comments, we get to hear Chicago's finest, the fire department going back -- coming back from their lunch break. So kudos to however you switched it. So this is the first time in a long time I don't remember hearing them in the background.

Craig R. Smiddyori -- President and Chief Executive Officer

Well now, you've jinxed us, Greg. I'm sure they'll be coming by shortly. We're here in the same room.

Gregory Peters -- Raymond James Financial -- Analyst

It's like every year, every time you do the calls, it's the timing. Listen, I was -- I wanted to sort of go at this differently. Firstly, Carolyn, so I was interested by your comments about the outlook both for new and refinance and so, I was wondering if you could give us some perspective. If I look at just the 2020 premium and fees earned, which is about $3.3 billion, how much of that was new business versus how much is refinance and so, when I put together -- one is going to be down, one is going to be up, it sort of gives me a benchmark of how -- what I should think the numbers should look like for '21.

Craig R. Smiddyori -- President and Chief Executive Officer

Carolyn?

Carolyn Monroe -- President, Title Insurance Group

Oh, sorry, Greg. I would say about 25% of our business was refinanced in 2020.

Gregory Peters -- Raymond James Financial -- Analyst

Okay, and then just to reiterate, you said that the refinance -- can you give me the numbers you said in the prepared remarks, which was going to be down, which was going to be up?

Craig R. Smiddyori -- President and Chief Executive Officer

Can you...?

Carolyn Monroe -- President, Title Insurance Group

So they're projecting that refinance will be down about 35% over 2020 and that purchases should be up around 16% over 2020.

Gregory Peters -- Raymond James Financial -- Analyst

Okay. And so, if I sort of ballpark it, that means that for -- based on that outlook that the year for premiums and fees should be stable or is that modestly positive? Is that -- I can do the math separately but that's sort of ballparking. Is that sort of the right guess...

Carolyn Monroe -- President, Title Insurance Group

Yeah, we...

Gregory Peters -- Raymond James Financial -- Analyst

That we have to do?

Carolyn Monroe -- President, Title Insurance Group

We're thinking that it should be stable. Yes.

Gregory Peters -- Raymond James Financial -- Analyst

Yeah. Excellent. And then the expense ratio in the Title improved in the quarter and I don't really want to get too hung up on one quarter's improvement over another quarter, but the annual trend is better and obviously, there is a volume component to that. But in there's -- you also went through some restatements. So talk to us about where you think the expense ratio, -- what's that should look like given the restatement, given the results, all of that.

Carolyn Monroe -- President, Title Insurance Group

I would say that it should stay about where it is right now.

Gregory Peters -- Raymond James Financial -- Analyst

Okay.

Carolyn Monroe -- President, Title Insurance Group

That would -- we don't like to do predictions but based on what we're seeing right now, we think it should be in about the same ballpark as it is right now.

Gregory Peters -- Raymond James Financial -- Analyst

And can you just walk me through the restatement issue? I would just -- I know it was called out to me and I just -- if you just walk me through what was going on there?

Craig R. Smiddyori -- President and Chief Executive Officer

Yeah, there's only one we have. Karl, help with that.

Gregory Peters -- Raymond James Financial -- Analyst

Okay.

Karl W. Muellerori -- Senior Vice President and Chief Financial Officer

Greg, this is an accounting policy change that the prior practices take back several decades actually where for a portion of our business, we were reporting premiums and fees earned net of associated expenses. And it became apparent given the growth of the business that we really needed to create consistency in our accounting practices. So at year-end of 2020, we made that change to all prior periods to make the comparison equivalent to the year-end 2020 presentation.

So it's basically a gross-up of revenues and gross-up of expense in this to the same dollar magnitude having no impact on pre-tax underwriting or operating income. So it had a relatively minor yield impact to the reported combined ratio 0.1% or 0.2%. So it's totally inconsequential and really doesn't drive the numbers so significantly. All periods are now presented on a comparable basis and you'll see slight changes as we go throughout the year on a quarterly basis.

Gregory Peters -- Raymond James Financial -- Analyst

Thanks for covering that, Karl, I appreciate it. Let's go back to General Insurance and I appreciate your comments around pricing and I guess what I'm, as I look at your results for the quarter, trying to understand, yes, premium was up a little bit. Is it all rate that's driving the premium higher, are you getting any unit count growth? It seems to me that at some point, you're going to -- the rate environment is going to become more stable and ultimately in order to grow the business, we need unit count growth and so, I'm just trying to understand the balance between the two in your reported results.

Craig R. Smiddyori -- President and Chief Executive Officer

Sure. So I know we've said it enough to continue to reiterate the point, but when you look at premiums, this quarter in General Insurance, you have to keep in mind that we're comparing those to first quarter of '20 where there was still growth in those premiums and it was pre-pandemic. So with -- the premiums fell commensurately with the reduction and exposures in the three quarters of '20 as well as the first quarter '21 but we stopped, we -- but it bottomed out in the third and fourth quarters and started to come back in the first quarter.

So our view is that as the economy rebounds and reopens that exposure units, particularly in workers' compensation, will increase fairly rapidly. And like I say, if once we get out into the second, third, and fourth quarters and we're comparing those to 2020 quarters, those premium levels I would think will be greater, perhaps significantly greater. So we are seeing exposures return as I say, there workers' compensation exposures bottomed out in the third or fourth quarter. What we saw in auto exposures were a drop-off in the second quarter of '20 and then things have picked up in auto exposures in the rest of last year, and again this quarter.

So exposures are definitely coming back. We would expect them to come back in a much more robust way as we move throughout the year and the economy continues to improve. So right now, it's a mixed bag, Greg. The -- what you're seeing in that, that increase is just the effect of coming off of reduced exposure base from '20 and rebuilding that exposure base as we go forward. And then, of course, you're getting -- you're also getting lift from rate but the exposure base is going to have much more of the contribution -- the exposure base increase is going to have much more of the contribution to top line as we go through 2021 after this first quarter.

Gregory Peters -- Raymond James Financial -- Analyst

Got it. And, Craig, I think I sent you an email recently, and I think I -- in the email, I was just raising a question from one of your investors around the -- your home warranty in auto warranty business. And I think now might be a good time for you to talk a little bit about it. I obviously understand relative to the three main coverages, it's minor but thought it might be worthwhile to let you give us an update on Old Republic's perspective on that business, why you think you're positioned to do well in that business relative to there's a start-up to -- one or two start-ups that are trying to make ways in that space.

Craig R. Smiddyori -- President and Chief Executive Officer

Sure. So in both of those areas, the auto warranty and home warranty, we have continued to invest in technologies to improve our efficiencies in our customer service levels. Both are very strong, profitable businesses for us. And I would say that something that distinguishes us is we don't mass market, I'll call it, as you may see on television or what have you where you see home warranty and auto warranty companies mass marketing and using that as their distribution channel. Our distribution channels for auto warranty and home warranty are really point of sale. The majority of our partners on auto warranty, our dealerships, and the various administrators that work with dealerships and that will always be an important distribution touchpoint with the customer at the point of sale.

And similarly, our home warranty business distribution is key there as well even though, as I say, we're investing in technologies to improve the efficiency at which we manage that business, price the business, and how we distribute the product. But the -- our focus is there to at point of sale with realtors. Realtors are our key to that and it's another example of where there are synergies with our title business where key focus of their distribution is on real estate agents as well.

And in home warranty, that is the focus and here too, I don't believe that's going away and will point of sale will always be important. However, in both auto warranty and in home warranty, we're also looking at expanding our distribution, not necessarily to the marketing ways of some of the competitors that we all see when we watch television, but through other strategic relationship and making sure that we expand our distribution approaches as well. So hopefully that answers your question, Greg.

Gregory Peters -- Raymond James Financial -- Analyst

That was great color. Thanks. I guess, and I know you talked about this upfront, Karl, about the -- and, Craig, about the no real change in your approach to the investment portfolio. One of the questions that pops up from time to time is the equity exposure you have and I know you guys are long-term in strategic and all that. I'm just curious based on the market returns in equities and if you're wondering if this risk-reward is still there in the near term even though you might have long-term confidence in some of those investments. Just curious how you're thinking about those variables in the context of what we're watching in the market.

Karl W. Muellerori -- Senior Vice President and Chief Financial Officer

Well, Greg, this is Karl. Let me take a crack at answering the question. Craig can fill in if necessary, but our objective really hasn't changed with respect to the equity portfolio. As we've stated on a few occasions, that our key objective is to provide yield enhancement to the portfolio overall above and beyond the yields that we can earn on the fixed maturity portfolio.

And we have selectively chosen a portfolio of something a little less than 100 securities in companies that have a very long history of paying and steadily increasing their dividend payout ratio. So it's an opportunity for us to invest and enhance investment income to a large extent with what we believe to be manageable risk. And we do perform a number of stress tests at company level overall, as well as for each of our subsidiaries that hold equity securities to ensure that under stress situations, our capital base is not significantly impacted in any negative way.

So you're right, it does introduce a greater degree of volatility at the net income line item, but that's why I focus and explain the results tends to focus on operating income that excludes the mark-to-market on the equity portfolio.

Gregory Peters -- Raymond James Financial -- Analyst

Got it. Hey, thanks for the answers.

Karl W. Muellerori -- Senior Vice President and Chief Financial Officer

Sure.

Craig R. Smiddyori -- President and Chief Executive Officer

Thank you, Greg.

Operator

Your next question comes from John Heagney from Dowling & Partners.

John Heagney -- Dowling & Partners -- Analyst

Hi, good afternoon. I just had maybe one or two quick number of follow-up questions. On Mortgage Insurance, you said the upstream dividend was $25 million, is that correct?

Craig R. Smiddyori -- President and Chief Executive Officer

That is correct.

John Heagney -- Dowling & Partners -- Analyst

So that's on a stat surplus base of 100 and -- call it $120 million at year-end '20. So were you able to release some of the contingency reserve amount?

Karl W. Muellerori -- Senior Vice President and Chief Financial Officer

We were certainly...

John Heagney -- Dowling & Partners -- Analyst

I think you've got equity.

Karl W. Muellerori -- Senior Vice President and Chief Financial Officer

You are, yeah. Yeah, I -- the number I mentioned earlier in my comments was the GAAP shareholders' equity. The statutory capital which would include the contingency reserve is in that same neighborhood $430-SOME-ODD-MILLION dollars. I don't have the exact number at my fingertips.

John Heagney -- Dowling & Partners -- Analyst

No, that's fine, but then presumably your -- just looking back, that's a higher dividend than generally came over the past four, five years, I mean there's been a little bit coming up. So I would assume then is the risk in-force running off a little bit quicker or are you getting state approvals to take down the contingency reserve faster? Not sure, if you've got the risk in-force for run-off actually.

Karl W. Muellerori -- Senior Vice President and Chief Financial Officer

Yeah, well, first of all, just to clarify, we have not until the first quarter of last year received any dividends from our Mortgage Insurance companies for several years as far back as I can remember. So we started last year and in the first quarter, received state approval to pay $37.5 million before, further return to capital were put on hold.

But secondly, your question regarding risk in-force. We do include statistics in the financial supplements on Page 6 that has a multi-year comparison of risk in-force and you can see that the run-off is about 25% of -- within any given year and that continues through the first quarter of this year. Since year-end, there was about a 7.1% decline and annualized, it's more even more than 25%. But it's in that neighborhood and has been pretty consistent year after year.

John Heagney -- Dowling & Partners -- Analyst

Got it. So I can use that what's happened as the proxy to kind of model this out going forward for the risk in-force?

Karl W. Muellerori -- Senior Vice President and Chief Financial Officer

I would think so.

John Heagney -- Dowling & Partners -- Analyst

Okay, thank you. And then the other one question I had in Title. Approximately, I mean, how big is the commercial book of business in there? I mean it was somewhere around 18% being discussed, that might have been several years ago at this point.

Craig R. Smiddyori -- President and Chief Executive Officer

Carolyn, can you address that?

Carolyn Monroe -- President, Title Insurance Group

Right. For the first quarter this year, it had accounted for about 14.2% of our total premiums.

John Heagney -- Dowling & Partners -- Analyst

Is that roughly in line with what it is on an annualized basis?

Carolyn Monroe -- President, Title Insurance Group

Know that's down.

John Heagney -- Dowling & Partners -- Analyst

No?

Carolyn Monroe -- President, Title Insurance Group

That's -- it's down about 10%.

John Heagney -- Dowling & Partners -- Analyst

Got it. So it's actually 20% to 25% of the portfolio if I was to think about commercial or no?

Carolyn Monroe -- President, Title Insurance Group

Yeah. Right. The first quarter of 2020, it was about 22.4%. Overall. It's generally around, probably 18% to 20% on an annualized basis.

John Heagney -- Dowling & Partners -- Analyst

Got it. Perfect. That's it from me. Thank you.

Craig R. Smiddyori -- President and Chief Executive Officer

Thanks a lot, John.

Operator

Your next question comes from Boris Kuzmin from Crawford Investment Counsel.

Boris Kuzmin -- Crawford Investment Counsel -- Analyst

Hey, guys. I have a couple of questions, one on the General Insurance side, specifically in the commercial auto. The improvements in the claims ratio is great after many years of kind of issues there, but I guess the question is, are you still getting that frequency benefits from kind of lower driving overall and how sustainable this improvement is I guess is the question.

Craig R. Smiddyori -- President and Chief Executive Officer

Yeah, very good question. The -- there is a frequency benefit that continues. It's not as great as it was in some of the prior periods in 2020 but it is a lower frequency. I would say in the low, right now it's about say at 10% frequency reduction. I think that's the height last year, we saw about a 20% frequency reduction. And then as I mentioned in my earlier comments, severity is still an issue, and unfortunately, the severity is offsetting the benefits of frequency.

So the reason that we're continuing to get rate increases in the 15% range is to continue, we would expect frequency to return to a more normal level and severity, we are not counting on any change in that trend. So we have to get that 15% -- 10% to 15% rate increase to address the ongoing severity issues.

The last thing I would just say is we have the -- claim ratio has improved. And I know quarter after quarter, we were talking about how hard, we were working to try to get that down from the peak claim ratios of 2019 and 2020 and all of the things that we were doing I think are starting to show up, but I would just point out this. That when it comes to our both, our loss ratio pick and when it comes to recognizing favorable development, we have a very patient approach, we're very slow to recognize favorable development on a longer tail line of business like auto liability. And therefore that reduction that you see in the claim ratio is not one that's coming from a reduction of the current year claim ratio or even the last few year claim ratios. So as to the extent that there is some frequency benefit the last year and continuing into this year, it will be a while before we would recognize that in our results.

Boris Kuzmin -- Crawford Investment Counsel -- Analyst

Gotcha. Well said, and then another question for you, Craig. In your Annual Letter that you referred to in the annual report, you mentioned that the stock price performance was, I think you said the income growing with strong operating performance. So I guess the question is why not have a buyback program in place or a situation like this when your stock trades below book value and seemingly not reflecting the strong fundamentals of the business?

Craig R. Smiddyori -- President and Chief Executive Officer

Right. So the income growing comment is certainly how we felt last year. I think our stock was not alone. Majority of others in the insurance and the broader financial sectors, value stock, in particular, dividend-paying value stocks were not treated very kindly last year. So as we said, with those strong results, you would expect commensurate changes in your price and that didn't happen last year, but it was I think more of a result of the broader market forces at work.

And with regard to the question on buyback. We also have in addition to that 2020 annual report letter that you just mentioned, we also issued a letter that's available on our website on January 6th. And in that letter, we tried to lay out for our shareholders, our thought process on capital management and I would refer you perhaps back to that letter and I think...

Boris Kuzmin -- Crawford Investment Counsel -- Analyst

But I guess that letter didn't really address buybacks versus dividends. You guys are implying why you paid a special dividend, which no one is arguing about in terms of you having capital to do that. But wouldn't it have been better to do a buyback I suppose to -- I mean you could have been immediately accretive to book value and earnings as opposed to payment of special dividend.

Craig R. Smiddyori -- President and Chief Executive Officer

Yeah. We're aware that. Some of our shareholders have raised that question and the matter is -- the subject matter currently before our Board, and the Board is going to address that issue at its upcoming May meeting after which time we expect that they'll provide a written response to that question.

Boris Kuzmin -- Crawford Investment Counsel -- Analyst

Okay, thank you.

Operator

[Operator Instructions] Your next question comes from Ryan Winrick from Guggenheim.

Ryan Winrick -- Guggenheim Partners -- Analyst

Hello, Just a quick one. I noticed almost all of your other miscellaneous debt was extinguished or matured this quarter, so I wanted to ask about that. And then have you provided a long-term guidance range for your debt to capitalization ratio? That's all, thanks.

Karl W. Muellerori -- Senior Vice President and Chief Financial Officer

Ryan, this is Karl. First of all, we had a very small balance of debt. A bank issued notes that matured in the first quarter of this year. So that's what's driving the decline since year-end. Yeah, we do set parameters for ourselves, what we refer to as our year-end metrics. And generally speaking, the range that we try to operate within is 10% to 25% debt-to-equity or debt-to-capital utilization ratio and we're well within that and trending toward the lower end currently.

Ryan Winrick -- Guggenheim Partners -- Analyst

Okay, thank you.

Operator

That was our last question. At this time, I will turn the call back over to management for closing remarks.

Craig R. Smiddyori -- President and Chief Executive Officer

Okay. Well, we appreciate the interest by everyone, appreciate the dialog and the questions. And again we are thrilled with the operating results that we put forth for year-end 2020, and then the continuation of extremely strong operating results in this first quarter of 2021. So thank you all for your participation and we look forward to talking to you again in next quarter. Thank you.

Operator

[Operator Closing Remarks]

Duration: 54 minutes

Call participants:

Joe Calabrese -- Senior Vice President at Financial Relations Board

Craig R. Smiddyori -- President and Chief Executive Officer

Karl W. Muellerori -- Senior Vice President and Chief Financial Officer

Carolyn Monroe -- President, Title Insurance Group

Matt Carletti -- JMP Securities LLC -- Analyst

Gregory Peters -- Raymond James Financial -- Analyst

John Heagney -- Dowling & Partners -- Analyst

Boris Kuzmin -- Crawford Investment Counsel -- Analyst

Ryan Winrick -- Guggenheim Partners -- Analyst

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