Old Republic International Corp. (ORI)

Q2 2012 Earnings Conference Call

July 26, 2012 03:00 PM ET


Aldo C. Zucaro - Chairman and CEO

Christopher S. Nard - President and CEO of RFIG, Inc

Karl W. Mueller - SVP and CFO

Scott Eckstein – Financial Relations Board


Jim Ryan - Morningstar

Christopher Seifert - Kingston Capital

Stephen Mead – Anchor Capital Advisors

Brett Reiss - Janney Montgomery Scott LLC

Scott Frost - BofA Merrill Lynch, Research Division



Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Old Republic International Second Quarter 2012 Earnings Call. Just a reminder, 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 for you to queue for questions. I’d like to remind everyone that this conference is being recorded.

And I’d now like to turn the conference over to Mr. Scott Eckstein with MWW Group. Please go ahead, sir.

Scott Eckstein

Thank you, operator. Good afternoon and thank for joining us today for Old Republic’s conference call to discuss second 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 July 26, 2012. Risks associated with these statements can be found in the Company’s latest SEC filings.

Participating in today’s call, we have Al Zucaro, Chairman and Chief Executive Officer, Chris Nard, Chief Executive Officer of the [runoff] RFIG business; and Karl Mueller, Old Republic’s Chief Financial Officer.

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

Aldo C. Zucaro

Thank you very much and good afternoon to everyone. In today’s earnings call we’ll be assuming that everyone who is listening, first of all has read this morning's news release and secondly has a reasonable current understanding of the various activities in which we’ve been engaged in that last five or six months in particular.

And specifically on that score, we’re referring to the plan we had organized to spin-off to the Old Republic shareholders, the company's ownership in the combined mortgage guarantee and CCI or Consumer Credit Indemnity for businesses that are included within our Republic Financial Indemnity Group or RFIG, as we refer to it, which is the holding company subsidiary that owns the MI and CCI businesses.

The objective, of course, with that plan was to use a standalone corporate vehicle in the person of RFIG, to access the capital markets and therefore – and thereby have an opportunity to raise fresh capital to at once replenish the capital base to offset the cumulative losses we’ve incurred to-date in our mortgage guaranty book-of-business, in particular, and to add to that capital base to possibly enable a re-entry into the business. So, as we reported in late June the entire plan was aborted and we did that in response to the views of some mortgage insurance stakeholders.

As a Group with reasonably confluent interests they believed that retention of the RFIG company within the Old Republic holding company system during an extended run-off period would ultimately lead to greater value for mortgage guaranty beneficiaries. So it is that we obviously listen to and we considered those concerns and obviously we concluded that Old Republic’s long-term interest as a diversified insurance business could best be served and protected by aborting the plan before it took flight.

As we note in this morning’s news release, the effects on Old Republic’s consolidated operating results and on the company’s shareholders’ equity account of the RFIG runoff business, those effects have been distinguished from those of our separately funded and managed general and title insurance segments.

And we think that this type of segmented presentation of our consolidated operations provides both shareholders as well as any other interested parties, a realistic picture of the separately active and runoff portions of our business as well as their respective impacts on the true economic values being delivered by the enterprise.

To do all this, we’ve obviously burdened this morning’s financial report with a much greater array of numerical data. Obviously, we believe that numbers can speak volumes and if a reader takes a little more time to digest all of those numbers we think that they do provide a true portrayal of the substance of our company’s active business, and of its future prospects with respect to the core – the two core portions of the business that are very much active.

In succeeding quarters therefore we will be following the same reporting approach, until such time as the RFIG segment settles down to a more hum drum state, so to speak. As we noted at the outset, we’ve three participants on this call. We will speak briefly and add a little additional color to the three segments of our business, both active and inactive. And we will focus on important balance sheet items and then as was suggested, we’ll open the session to a question-and-answer period.

So, starting with a look at our largest business of general insurance, the results this past quarter were not as good as they were in the first quarter, obviously, nor were they as good as we had expected.

As always, we need to emphasize that individual quarter’s results are not particularly meaningful in a business that has to be managed over market driven cycles. At best, an annual period is certainly more telling than a single quarter. But be that as it may the basic story now relative to this year’s second quarter and first six months is that we needed to be a little more, perhaps much more heavy handed in our loss provisions for the current accident year on the one hand, and we experienced on the other hand, a lesser level of redundancies relative to prior years loss reserves in the inventory of unpaid claims.

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