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Old Republic International Corp. Q1 2010 Earnings Call Transcript

Old Republic International Corp. Q1 2010 Earnings Call Transcript

Old Republic International Corp.




Q1 2010 Earnings Call Transcript

April 22, 2010 3:00 pm ET


Scott Eckstein – IR, Financial Relations Board

Al Zucaro – Chairman and CEO

Chris Nard – President-elect


Beth Malone – Wunderlich

Joe Gagan – Atlantic Equity Research

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Bill Clark – KBW

Jordan Hymowitz – Philadelphia Financial

Matthew Goetzinger – Fiduciary

Jeff Dansey – Cutler Capital Management



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Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Old Republic International first quarter 2010 earnings conference call. Today’s call is been recorded.

At this time all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for your questions. I would like to remind everyone that this conference is being recorded.

I would now like to turn the conference over to Mr. Scott Eckstein of the Financial Relations Board. Please go ahead, sir.

Scott Eckstein

Thank you, operator. Good afternoon everyone, and thank you for joining us today for Old Republic’s conference call to discuss first quarter 2010 results. This morning we distributed a copy of the press release and hopefully you've had a chance to review the results. If there is anyone on the line who did not receive a copy, you may access at Old Republic’s website at

or you may call Liz Dolezal at 312-640-6771 and she will send you a copy immediately.

Please be advised that this call may involve forward-looking statements as discussed in the press release dated April 22nd, 2010. Risk associated with these statements can be found in the company's latest SEC filings. Joining us today from management are Al Zucaro, Chairman and Chief Executive Officer, and Chris Nard, President-elect.

At this time, I'd like to call turn the call over to Al Zucaro for his opening remarks. Al, please go ahead.

Al Zucaro

Thank you, Scott, and good afternoon everyone from Chicago and on behalf of Chris Nard from Winston, Salem. As always, we'll assume that you've read this morning's release and that you had time to digest all the, or at least most of the numbers we've included in it. So again, we won't waste your time slavishly repeating what's there. Instead we'll make a few comments as usual to perhaps add a little more color, and understanding to what you've received, and then we'll turn the rest of the call to questions. I must say this is the most pleasant call in a long time. It's the first time that we've reported a black bottom line since 4Q '07. And you can bet that we're hopeful that this is the beginning of a long stretch of positive earnings for our company.

As we've done recently, I'll speak to the general insurance business first. And then I'll turn the phone over to Chris, who will cover the housing and credit portions of our business. And then when he's through, I'll come back with some wrap-up comments on the overall picture, and on the way we see our world for the foreseeable future. So beginning with general insurance, let me say this at the outset. With the exception of our consumer credit indemnity, and the much smaller guaranteed asset protection insurance coverages, all of our other lines are performing very well from an underwriting standpoint.

Overall, these lines have continued and that produced average composite underwriting ratios in the mid 90s for the last five years, and they've continued in the same vein in the first quarter, as you can see in the release this morning. And as we said on a number of occasions in the past three years or so, the only issue of significance that we face, relating to these well performing coverages, the issue has been a lack of top line growth. And as we've explained, there are basically two reasons for this lack of energy up top.

First of all, we've been dealing like the rest of the American economy with a – of the insurance industry, I should say in the property and liability area, with a soft pricing environment in most areas in which we operate. And by that I mean most of the industries in which we specialize, and with regard to those with most of the coverages that we underwrite in those industries. So the soft pricing environment in which we're operating – have been operating leaves very little room for underwriting error, since quality investment yields as you know continue to be very low, and cannot therefore be relied upon to offset any underwriting weakness to speak of.

Secondly, we've been dealing with a very weak private sector in what is being called the great recession. As we said in the past, and also I've repeated in the press release this morning, we can't expect a significant pick up in our commercial insurance premium volume until we get a pickup in economic activity. Particularly in terms of sales and employment levels among the customers we ensure. Employment is very critical for us. It drives our big worker's comp line, as well as other related lines. And therefore until that shows some renewed strength in the overall economy, we're going to continue having some difficulty increasing the top line to a significant degree.

So when it comes to the production side of our business, our game plan remains as it's been for a while. As we like to say, you know, steady as she goes, stay focused on what we do best, but never stop looking for books of business that may be available, and that we can readily fit within our underwriting sphere of competence. So it takes us down to underwriting. The main area of concern for us in our general insurance segment is therefore been the consumer credit indemnity or the CCI coverage as we refer to it. And this line has been throwing off substantial amounts of underwriting red ink since 2008.

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