Detailed Narrative
Investment Performance and Strategy
Net investment income increased by over 6% in the quarter, primarily due to a larger investment base resulting from strong operating results and a debt issuance in May. The average rate on corporate bonds acquired during the quarter was 4.9%, compared to an average yield of 4.2% rolling off. The total bond portfolio book yield ended the quarter at 4.8%, a slight increase from year-end, indicating a positive trend in investment returns.
Specialty Insurance Reserve Development and Expense Trends
Specialty Insurance experienced slight unfavorable prior year loss reserve development, primarily driven by a $40 million reserve strengthening in its runoff transactional risk business, which was placed in runoff in 2024 due to poor claims experience. This was partially offset by significant favorable development in property and commercial auto. The expense ratio for Specialty Insurance increased to 29.6% from 28.2% in Q2 2025, largely due to continued investments in technology modernization, data analytics, and AI, which management views as critical for future operational efficiency and pricing perfection.
Commercial Auto and Workers' Compensation Performance
Commercial auto net premiums written were up 3.6% in the quarter, with the loss ratio improving to 69.4%, about 1 percentage point better than Q2 2025. Rate increases in commercial auto were in the high teens, exceeding current loss trends. Workers' compensation net premiums written were 8.4% lower, and the loss ratio increased to 60.6% from 48.5% in Q2 2025, primarily due to lower favorable prior year loss reserve development compared to the prior year. Rates were held flat in workers' comp, with severity trends consistent and frequency trends declining.
Title Insurance Growth and Efficiency
Title Insurance reported an 11% increase in premium and fee revenue, reaching $773 million, driven by improved residential transactions and strong commercial activity. Commercial premiums constituted 25% of earned premiums, up from 23% in Q2 2025. The expense ratio improved by 4 percentage points to 92.1%, with about 2 points attributed to the absence of a one-time📎 litigation settlement expense from Q2 2025. The remaining improvement stemmed from operational efficiency, expense management, and higher transaction volumes, partially offset by higher agent commissions due to a greater weighting of agency business (78% of revenue).
ECM Acquisition and Integration
The acquisition of ECM is expected to be accretive to earnings and book value in FY26, contributing to both top line and bottom line in the second half of the year. ECM reported direct premiums written of just under $220 million in 2025 and ended that year with GAAP equity estimated at $145 million. Management expects ECM to achieve combined ratios between 90% and 95% and has integrated ECM into its corporate treaties, eliminating external quota share arrangements as of July 1.
Capital Management and Share Repurchases
The company paid nearly $77 million in dividends and repurchased $61 million worth of shares during the quarter, leaving approximately $640 million remaining in its current repurchase program. Management continues to view share repurchases as a way to return capital to shareholders opportunistically, considering trading levels and avoiding dilution to book value per share. The possibility of a special dividend is also considered towards year-end based on the capital position.