Old Republic International's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Old Republic International Corp. (ORI)

Q1 2012 Results Earnings Call

April 26, 2012 3:00 PM ET

Executives

Scott Eckstein – Financial Relations Board

Al Zucaro – Chairman and CEO

Chris Nard – President

Analysts

Jim Ryan – Morningstar

Bill Laemmel – Divine Capital Markets

Presentation

Operator

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Old Republic International First Quarter 2012 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 in for questions.

I would now like to turn the call over to Mr. 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 first quarter 2012 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 April 26, 2012. Risks associated with these statements can be found in the 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

Thank you very much and good afternoon to everyone. And welcome once again to this quarterly update of ours. As we have done for a while, I’ll speak to General Insurance and then the consolidated business. And Chris will speak to our mortgage guarantee and title insurance, again, as he has done on many past occasions.

Just to go back a little bit, a little more than a month or so ago, we put out the news that we would on the one hand, mailed the consumer credit indemnity or CCI insurance division that’s been part of our General Insurance since the 1950s, when it was first started. And that would melt that business with our mortgage guarantee segment, which incidentally we have renamed the Republic Financial Indemnity Group Inc. or RFIG.

As we speak, we have not -- as we indicated in the release this morning, we have not as yet completed this inter-segment transfer. So we’re still reporting the CC line -- CCI line as part of the General Insurance segment.

However, if you -- if you -- as you read this morning’s earnings release, you’ll see that we have shown the most important effects of the CC line -- CCI line on the General Insurance results. And of course, these are mostly shown in terms of the all important impact that that coverage has on the overall underwriting results of our General Insurance Group.

So when you look at what we have written in the supplemental table on the pages three and four of the release this morning, you can readily see that the CCI line has been having a progressively less honorees impact on the segments underwriting account, and that’s of course a positive outcome.

In that line we still had as we discussed in our risk exposures and litigation exposures, portion of the 10-K that we issued in late February. We still have to deal with a couple of call them trans-agent situations being litigated within that line, but I think we are beginning to see the end game and so far as normal claims activity is concerned in CCI.

After we move that line into our mortgage guarantee segment, we should have, again, which is our intention, a better opportunity to possibly re-capitalize that business and then to reactivate it in a more rational fashion in the next couple of years or so, at least that’s our objective long-term.

In other regards, the General Insurance business is performing reasonably well. In the release we noted that we are beginning to benefit from some of the rate improvements we’ve got in the past several quarters, as well as from the relatively slow uptick in economic activity.

Safe to say, however, that we’re looking mostly to a better economy to generate greater demand for our General Insurance products and therefore to grow the topline of that segment down the road.

We are taking, I might say that we’re taking the benefits of rate increases that we’ve got so far with a fair degree of hesitancy as to how much of them will in fact fall to the bottom line.

We think that most if not all of the improved rate situation is going to be needed to offset some inflation driven claim cost accretion that we’ve been experiencing, particularly in the relative to the medical cost portion of workers comp and the liability claims generally.

On the expense side of the income statement i.e. our production, our general operating expenses other than claims. We noted in this morning’s release an adjustment of about $10.5 million to take down our deferred sales expenses or what we refer to in the trade as DAC, Deferred Acquisition Costs.

And in that regard we took the opportunity of a new Financial Accounting Standards Board, FASB guidance for calculation of DAC to take another look at what we had been doing for many years.

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