Old Republic International Corporation (



Q4 2011 Earnings Conference Call

January 26, 2012 15:00 ET


Scott Eckstein – Financial Relations Board

Al Zucaro – Chairman and Chief Executive Officer

Chris Nard – President


Bill Laemmel – Divine Capital Markets

Geoff Dancey – Cutler Capital

Steven Charest – Divine Capital Markets

Jim Ryan – Morningstar



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Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Old Republic International Fourth Quarter 2011 Earnings Conference Call. Today’s conference is being 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.

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

Scott Eckstein – Financial Relations Board

Thank you, operator. Good afternoon and thank you for joining us for Old Republic’s conference call to discuss fourth quarter and full year 2011 results. This morning, we distributed a copy of the press release. If there is anyone online who did not receive a copy, you can access it 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 dated January 26, 2012. Risks 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.

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

Al Zucaro – Chairman and Chief Executive Officer

Thank you, Scott and good afternoon to everyone. As always, we assume that you have read the earnings release, so we won’t bother repeating what’s there. We’ll just refer to parts of it as the case arises. As usual, Chris Nard and I will make some remarks about key aspects of our business that we think are or should be of interest to you. And then we’ll turn to call to your questions as was stated before.

We’ll comment on the General Insurance first, which is as you know our biggest single business from a revenue and capital allocation standpoint as well as now bottom line standpoint. And then move to the housing-related businesses, which for us are represented primarily by Mortgage Guaranty and Title Insurance. Though we do have other parts such as the Home Warranty business and the so-called consumer credit indemnity, which we’ll touch upon that are also related in many ways to housing as such.

So, moving along to General Insurance, the picture, we would say, has gotten increasingly rosier, as 2011 moved along. And by rosier of course we are referring to the fact that the underwriting account, which is all the more important in this era of low investment yields, has gotten progressively better. As we have said in this morning’s release, much of the improvement in General Insurance from an underwriting standpoint comes from a reasonably consistent downtrend in claims that have been incurred in our consumer credit indemnity or the CCI line as we refer to it. And 2011 has been one of the lowest periods or I should say the lowest period since 2008 or thereabouts.

As anyone who has followed Old Republic’s recent business developments knows the CCI line has been a big time headache for sure for us since late 2007, as the economy went into a tailspin. It’s been the only coverage of any significance measured in terms of premium volumes that’s been consistently unprofitable during the last four years. And the level of losses it has thrown off has been sufficiently high as to drive the rest of the underwriting account in General Insurance into negative territory in both 2009 as well as 2010.

So, if you look at the statistical exhibit that we are posting each quarter on our website. You can readily see the impact of CCI, particularly on what we refer to as our financial indemnity book of business, which includes such things E&O, D&O and so forth.

Now, I would say, we are expecting this pattern of reduced CCI claim costs to continue fairly steadily, as the U.S. economy comes out of recession and more importantly, as the job outlook improves, because obviously with jobs people get income and they are able to meet their obligations. So, just like we said the last time, we visited at the end of the third quarter, we are not yet totally out of the woods, but we believe we are seeing the beginning of the end for this particular episode in our history.

In other respects, the vast majority of our business is producing fairly decent composite underwriting ratios. And again, if you refer to the exhibit, you will see that most of the coverages are clocking in at about the mid 90s from an underwriting standpoint, which is very good particularly – we think particularly for a long tail business as we write at Old Republic. So, barring some unforeseen calamity, we think that the prospects for this business are reasonably good.

As we noted in the release this morning, the rate situation, premium rate that is improving ever so slowly for many of the coverages that we offer at Old Republic. And again, as we said as a minimum the rate improvements, where we are experiencing should provide some offset to the ongoing inflationary pressures that affect the claim costs that are in our case associated with truck repairs and other types of repairs, and as importantly with respect to the medical portion of claims in our largest coverage of workers’ compensation. As you may know typically the medical portion of comp cases will account for 40% to 45%. So, as you know, we do have some inflation taking place in this country, when it comes to healthcare. And as I say, the rate improvements we are getting at least on the comp side should be helpful in attenuating the impact of that inflationary pressure that we are experiencing.

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