Old Republic International's CEO Presents At Partial Leveraged Buyout And Planned Spin-Off Of Its RFIG Subsidiary's Stock To ORI Shareholders Conference (Transcript)

Old Republic International Corporation (ORI)

Partial Leveraged Buyout and Planned Spin-Off of its RFIG Subsidiary’s Stock to ORI Shareholders Conference Call

May 22, 2012 11:00 am ET


Scott Eckstein – Investor Relations

Aldo C. Zucaro – Chairman and Chief Executive Officer

Christopher S. Nard – President and Chief Operating Officer


Jim Ryan – Morningstar

Geoffrey Dunn – Dowling & Partners Securities, LLC

Tom Reynolds – Perkins

William Laemmel – Divine Capital Markets

Thomas Kahn – Kahn Brothers & Co.

Geoff Dancey – Cutler Capital Management

Alan Zimmerman – Macquarie Research Equities

Jim Agah – Millennium Partners

Matthew Howlett – Macquarie Research Equities

Darius Brawn – SAC Capital Advisors



Please standby. Good day ladies and gentlemen thank you for standing by and welcome to the Old Republic International update conference call. Today’s call is being recorded. At this time all participants are in a listen-only mode. Following today’s presentation we will conduct a question-and-answer session and instructions will be provided at that time for you to queue up for questions. I would like to remind everyone that this conference is being recorded and would now like to turn the conference over to Scott Eckstein of the Financial Relations Board. Please go ahead sir.

Scott Eckstein

Thank you, operator. Good morning everyone and thank you for joining us today for Old Republic’s conference call to discuss its news release. Yesterday afternoon 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 May 21, 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 Al Zucaro for his opening remarks. Please go ahead.

Aldo C. Zukaro

Thank you, Scott and good morning to everyone. I hope that you’ve all seen yesterday’s news release, which is obviously just a follow-up to what we’ve been saying for quite a while now. And of course that’s that within the Old Republic Holding Company system, we had simply run out of steam so to speak. To provide additional financing to the MI and CCI business lines, in light of the accumulative loses that had been incurred in those lines, since 2007.

And even though we certainly have a fair amount of cash, that we could have added to those businesses. Most of that money however stems from both funds, which we didn’t want to exposed to the repayment risk that exists with any long-term commitment such as the mortgage guaranty insurance or CCI lines. In our view, which we’ve held for the longest of times, these lines have got to be mostly funded with permanent capital. We also did not want to capitalize the business by moving into our MI company’s capital. This stock ownership of various of our general entitled holdings to the possible detriment of policyholders of these companies. We think we believe strongly that this is a critical element in our enterprise risk management objective and that is to not stack or pyramid or otherwise engage in double or triple leveraging of our institution and other component products.

Given, I believe that there is a necessary economic need and true societal benefit in these products. We concluded that separating the combined MI and CCI businesses from the rest of the Old Republic Holding Company system was at this time, the most practical way of at once running off the legacy book and of laying the ground work for raising new capital for a reentry into these markets as quickly as feasible.

So, in light of these four basic considerations i.e. one, having run out of a permanent source of capital for these lines; two, believing in the long-term economic necessity of these products; three, retaining a strong infrastructure to both run-off the legacy book in the most economical and fairly executed basis at our disposal and four keeping the RFIG corporate vehicle in place to enable its recapitalization down the road, with these considerations in mind and just as importantly if not more importantly in keeping the Old Republic shareholders interests at the forefront, we’ve devised this two part spin-off strategy, which is outlined in the release.

First of all, we’ve now sold as you can see a roughly a 20.6% interest to a group that include several of our key people in both the MI and CCI lines as well as three individual investors with extremely well established credentials in the insurance business. We prize the 20.6% interest at a level, which at once reflects the current and unfortunately growing negative equity of RFIG and provides however, for an up side prize adjustment in the event that the OTC, over the counter post spin-off market comes up with a higher price.

So in this way we believe we are providing both the necessary incentive to the LBO participants and we are also allowing the capital market’s post spin-off to impact the value of these incentives and capital contributions.

Secondly, we’ve kept the ORI shareholders interest firmly in the mix by turning over to them substantially all the remaining, which should be around 79% or so. RFIG shares that we currently own within the Old Republic Holding Company system.

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