Old Republic International Corporation ( ORI)

Q3 2011 Earnings Call

October 27, 2011 3:00 PM ET


Scott Eckstein – FBR

Aldo Zucaro – Chairman and CEO

Chris Nard – President and COO; Chairman, President and CEO – Republic Mortgage Insurance Companies


Geoffrey Dunn – Dowling & Partners



Good afternoon, ladies and gentlemen. Thank you very much for standing by. Welcome to the Old Republic International Third Quarter 2011 Earnings Conference Call. Today’s call 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 for you to queue up for questions. I’d like to remind everyone that this conference is being recorded.

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

Scott Eckstein

Thank you operator. Good afternoon and thank you for joining us today for Old Republic’s conference call to discuss third quarter 2011 results. This morning we distributed a copy of the press release. If there is any one online who did not receive a copy, you may 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 October 27, 2011. 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 Al Zucaro for his opening remarks. Please go ahead.

Aldo Zucaro

Thank you and good afternoon to everybody and again welcome to our quarterly session here. We’ll make a few comments as usual about each of our segments and then we’ll, as well as the overall business I might say, and then we’ll respond to your questions.

It goes without saying that we are not very happy in being bearers of bad news. But the numbers are the numbers and they are ours to both own and to explain.

As you’ve seen in the release this morning, our business continues to be most negatively impacted by the Mortgage Guaranty line. Title Insurance is producing a small profit as you can tell and the operating trends in it are positive just as they’ve been since 2009. General Insurance our biggest segment both in terms of capital commitment, revenues, et cetera, et cetera, is also showing more positive results each quarter, and this is particularly so from the standpoint of the all important underwriting portion of the income statement.

Looking first at General Insurance then, the underwriting ratio has been now below 100% for the third consecutive quarter and this is a good news item for this part of our business which those of you who follow our company know has been running a bit of an underwriting fever in the last two years. We were underwriting profitable through 2008 and dipped into negative underwriting territory in ‘09 and ‘10 and as I say, these first three quarters of this year have been on the profit side of the ledger, so we feel good about that.

As you can see in the General Insurance section of the release obviously the consumer credit, or CCI product line, has become a lot less burdensome to the segment’s loss ratio during the past several quarters. General Insurance from a pre-tax income standpoint as you can, again as you can tell was up about $37 million in the third quarter and up by almost $80 million in the first nine months of this year. And just in round numbers it might interest you to know that the improvement in the CCI product line accounted for about 70% of the improvement in the 3Q of this year, and for about 54% of the nine months improvement. So that again shows the continuing reduction in the hit to the underwriting account from the CCI product. The rest of the improvement in these particular comparisons between 2011 and 2010, investment income accounts for a portion of it, and the merged PMA numbers which we’ve also shown in the release account for the remainder. That leaves the rest of the business, which accounts, and that would be our core business pre PMA merger and pre the CCI product. That portion of the business accounts for about 5% to 6% of the three and nine month’s bottom line improvements respectively.

If you take a look at our website we’ve posted a financial supplement which contains quite a bit of statistics dealing with claim and expense ratio trends for the major coverages we write, not only in General Insurance but in Mortgage Guaranty as well as Title.

We respect to General Insurance in particularly you will see that the claim ratios have held fairly steady with a few blips here and there, but no significant inference from those blips about any longer term trends that we can think of.

As we just said the financial indemnity line which incorporates the CCI coverage, as a result, shows significantly positive claim ratio trends in the most recent quarters. So again, it reflects the serious impact that CCI has had, both on the financial indemnity group of coverages as well as our overall General Insurance business.

So while we don’t think that we are out of the woods as yet with regard to CCI, we think we are witnessing the beginning of the end so to speak, particularly if we can, as we think we can, extricate ourselves favorably from a couple of nuisance lawsuits that are related to the CCI line.

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