Old Republic International Corp (ORI) 2001 Q1 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Old Republic International conference call. At this time all participants are in a listen-only mode. Later, we will conduct a question and answer session and instructions will follow at that time. If anyone should require assistance during the conference, please press / and 0 on your touchtone telephone. If anyone disconnects, and he is to rejoin, please dial 1-800-982-3472. As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference Ms.Leslie Goyas on the Financial Relations Board. Ms. Goyas, you may begin.

Good afternoon and thank you all for joining us today for Old Republic's conference call to discuss first quarter results. If you have not received the copy of the press release, please call Sameer Patel at (312) 640-6771 and he will send one to you immediately. Before we begin, please be advised of this call may involve forward-looking statements. Risks associated with these statements can be found in the company's latest SEC filing. On the line with us today, from Old Republic is A. C. Zucaro, Chairman and Chief Executive Officer. We will start with the brief remarks and then open the call for questions. Al, if you are ready?

Yes, I am, thank you. Good afternoon to everyone. Well, I think that our results for this first quarter represent, I think, a very nice down payment, if you will, on what we expect to be still a very good year for all of 2001. Each of our segments, all four of them including our smallest one were in sync for the quarter, and as you can see from the stats, that were provided with this mornings' press release, they performed very well and pretty much as we thought they would. All of the earnings, growth, I might point out, both in total as well as on a per share basis in this past quarter came from better underwriting and service results. Turning first, as we always do, to our General Insurance business, which is our largest revenue producing business, and which, as you know, incorporates our property and liability insurance coverages that are aimed principally at commercial accounts. That business continued to move forward with gradually expanding premium revenue line as you can see, steadily improving underwriting margins and stronger operating cash flows than has been the case for several quarters. Again, as you see in the statistics, general marine insurance premiums in this past quarter grew by almost 18% to 246.7 million. I should point out, however, that this rate of growth included for us as it did for many similarly situated FENC companies in this quarter for 2001, included approximately 2.7%, which was of growth, which was caused by a change in our premium accrual methods that are newly mandated this year by insurance regulatory authorities. I should note moreover that this change affects only premiums written and not the earned premium line, which enters into the determination of net income for any period. Basically this is due to the fact that mechanically, the increase in net premiums written in this regard is basically offset by an increase in unearned premiums as well as related changes in differed acquisition costs and income taxes. So this change in method basically represents an accrual of premium instalments, if you will that are not yet due for coverages other than Workers Comp. and in the final analyses, it mainly serves to basically gross up, I should say, the balance sheet and causes a little bit of payment acceleration when it comes to such items as premium taxes and similar charges that are predicated on premiums written as opposed to earned. So, if we eliminate this nonrecurring adjustment in premiums written, the consistently if you will, calculated the increase in writings for this first quarter was approximately 15.2% rather than the 18% figure that I mentioned before and it was caused, as you might expect, by the effect of great increases which keep coming through on renewals, as well as increasingly some new production opportunities, and as has been the case for several years now, a certain amount which emanates from reduced sessions to outside re-insurers. If you look at net premiums earned, the increase in this year's first quarter was, as you can see from the stats, about 10% and that is a legitimately calculated number, or I should say it is a consistently calculated number. Either way, these are the highest levels of quarterly top line growth that we have achieved in the segment for the past six years, I believe, and while there are degree of variations, we are experiencing growth for nearly all of our property and liability lines as well as profits centres in our General Insurance Group. The basic sources of this premium growth are, as I say, continuing increases in rates for most coverages. We are finally now, for the second quarter in a row, beginning to experience increased retentions or persistency of accounts, if you will, at renewal time, and we are experiencing growth to a moderate amount of geographical expansion, particularly in such areas as our warranty line, which we have been expanding nationally now for the past couple of years, and finally, we again, as has been the case for several quarters now, we are experiencing and are getting greater opportunities to underwrite new business due to the continued tightening of commercial insurance markets, in particular, in all sphere of operations. And concurrent with these much more positive trends at the top of the income statement, there is a steady downtrend in our claims ratio. I think you can readily calculate it from the stats we have provided, but it dropped to about 76% in the first quarter of this year, and this compares to the 80.2% that we posted in the same quarter of 2000 and 77.8% for all of 2000. In to our production, sales, and operating costs, in general insurance remained pretty much under control and are staying within our typical range of 27-28%. So the combination of these ratios produced a 103.4% composite ratio in the first quarter of this year and this compares to about 110%, 111% almost, for the same period last year and 106% for all of 2000. Of all of our major coverages, we are seeing good positive trends particularly in _8:17___ ratio and loss ratio area and the exception is Workers Comp., which in our case, accounts for about 16% along that volume. Unfortunately, it is still showing the same type of loss ratio the generation, if you will, but it reflected throughout 2000, and in my judgment it may take a couple of years before we get that part of our business on track, since we have to labor on through state by state filings to obtain premium rate increases. Even so, I think that the key ingredients that go into the makings of a, growing more profitable book of business, I think I are in place of Old Republic and so that they can move these results to read our goal, re-establishing, underwriting profitability in the foreseeable future. At this stage of the game, I continue to believe that 2001, General Insurance underwriting results for the public have a good chance as we have indicated in the prior two quarters. We got a good chance of registering a combined ratio within a range of 101-103% and this would represent, as you can tell, 500-300 basis points improvement over the 106% that we posted last year. As a final point I should note that General Insurance operating cash flow was a lot more positive in the latest quarter. It had been pretty much at breakeven or slightly positive for most of 2000. So, that is another positive that is occurring in this part of our business and, obviously, as the greater amount of funds are added to the invested asset base, we should in fact, begin to see much more bottomline input from investment income. Further, as you recall, for a part of 2000 as well as most of 1999 and part of 1998, we had been extricating cash from the General Insurance area to some outside stock buyback program and having in fact put that program on hold, we no longer had the necessity to do that, so that most of the cash flow that is generated by operations other than the, whatever amount is needed to pay regular dividends to parent holding company, is in fact being added to our invested asset base. Turning to our mortgage guarantee business, it, as you can see, continued to perform very well in this year's first quarter and even though, refinance activity has picked up significantly as a result of continued downward pressure on mortgage rates with which you are all familiar, we still managed to produce little more than 6% growth in earned premiums. Among other indicators of business production in this year's first quarter, new insurance written, which in our case does not contain the effect of any so called ad hoc transactions rose by some 281/2 % to $4.4 billion and direct primary insurance in force rose by almost 7% to $62.5 billion. Business persistency clocked in at roughly at 80.6%, which is still very strong in the first three months of this year, and this compares to 78.1% for the same quarter of last year. So, in fact the level of refinancing activity is so far, at least not making much of a dent in our ability to keep the business in force. On the cost side of the ledger, our claims ratio and mortgage guarantee dropped to 19% in this first quarter of 2001 and this compares to 21.7% in last year's first quarter. Our sales and operating costs amounted to 27.6% this year compared to 29.4% in the first quarter of 2000. So I think we are continuing to make a dent in our cost structure, we are doing a better job, we are getting increasingly more efficiency from the technological side of the business that we have invested in pretty heavily for a three or four year period. It seems that we are beginning, as I said, to get some benefits from that area. Putting these factors of claim ratios and expense ratios together produced the composite ratio that you see at 46.6% this year versus 51.1%, same time in 2000 and you know, close to or better than the final quarter of last year. While our loan default rate in the first quarter was up at 2.84% from 2.153% in the first quarter of last year, our average reserves per loan that is in default status dropped to about 12,600 from nearly 14,700 at the end of March 2000. We believe that these reductions stems from a different mix and the number of defaults as to their life of time that they have been in default plus on top of that, we are getting and are expecting a greater _Q_14:30__ rates, if you will, that should prevail for this year and finally, we do have lower average payments per claims, principally due to a reduction in the number of claims that stem from our California business, which California claims because of the cost of housing etc, tend to be higher and as well as have been reduced in terms of the percentage of the total. It has had this downward effect on our average loss payments. So all of these factors in their totality are, I believe, the main causes for the lower loss costs we have posted in this first quarter of 2001. I might also note that the paid-loss ratio for the first three months of this year also declined to roughly 13.2 %, now that is down from 14.9% in the same quarter of 2000 and according to the stats here, it is down from about 15.1% for all of 2000. So, the average payments and the total payments and the better _Q_15:47__ rates that we are experiencing all seem to lend support to the rationale for the lower loss ratio we have posted. From the cash flow standpoint, mortgage guarantee operations continue to provide very strong cash inflow to our balance sheet and in fact accounted for about two thirds of the consolidated cash flow of about 87 million that we registered for our entire business in this first quarter of 2001, and these high levels of cash being added to the invested asset base in our mortgage guarantee business, which has grown significantly quarter to quarter for the past couple of years are what is propelling the mortgage guarantee investment income on to the tune of about 18% in this first quarter of 2001. Bottomline wise as you can tell, we posted growth of about 16.5, 16.7% to be exact in this year's first quarter and I have to say that this is somewhat richer than we had expected when we finalized our operating budgets earlier this year. I think, as they say that the somewhat lowered loss costs and the greater investment income contribution are the main reasons for these better-than-expected results. In title insurance we benefited from much greater title orders in this first quarter and these, of course, are being driven mostly by a much stronger, more with refinancing activity which started to grow, as you know, late in the third quarter and in the fourth quarter of 2000. The other elements that drive the title segments bottomline include loss cost and operating costs and both were in very positive territory in this year's first quarter. Claim cost aid had a very low level of 3.8 of title premiums and fees. Operative costs in both as a result of cost controls as well as the growth in the top line that we have been experiencing dropped to 92% in the first quarter of this year from 99.3%, which was a much weaker quarter in the first quarter of 2000 and almost 97% that we posted for all of 2000. So, as a result of these improving operating margins as you might suspect, cash flow also grew in tile insurance though, at a much more moderate pace than was the case in mortgage guarantee insurance, but it nonetheless grew in the latest quarter and this is somewhat unusual in that the first quarter of the year is not the poorest period of the year in title insurance. While we are on the subject of title insurance, there was a blurb in the Business Press a couple of weeks ago dealing with our legal situation, regulatory and class actions against our California title operations. Let me take a minute to just broach that subject. These cases have now reached the judges' bench and they are being argued in stages at least through June of this year. As matters stand, I think there is a real possibility that this litigation timeframe may well be extended to a longer period, particularly, if we need to appeal to a higher court jurisdiction, and that could well be on the cards since we and the rest of the title industry have got a real interest in the issue in that whatever ground rules come out of this litigation are ground rules that we can all live with. So far in the case of Old Republic for this litigation and related issues, we have paid or reserved, as the case may be, a total in the aggregate of $41 million since 1998 for all these issues involved, as I say. We currently think that we have booked so far represents a realistic appraisal of our situation, and I do not believe that our exposure to any material increase in this total is significant. However, as always, we need to caution that there are always risks involved in any litigation and we remain very much aware of them. With respect to some litigation against our mortgage guarantee business we continue to plod away on that, and there is nothing to report on it. With respect to our total business, there have been no significant changes, as I look at our balance sheet here, as to the capitalization in the early part of this year. There are no changes, as I have indicated before in the status of our stock buyback program. That means it is still on hold since we believe that we can once again put our capital excess or otherwise, to work advantageously in our business. As I indicated at $87 million our consolidated operating cash flow in the first quarter of this year was about 45% higher than the level that was attained in the same period last year. While we have directed some of the newly available funds to investments in equities, we continue to direct most of them to the fixed income baskets, if you will. As I noted before, with the expectation we have of positive operating cash flows for the year as a whole, we are therefore, quite likely to experience higher investment income growth due to a much greater invested asset base. Looking a little bit ahead, based on the results and the trends we see after some three-plus months of this new year, we are quite optimistic that the full year results should surpass our achievements last year in a very positive way. In many parts of our General Insurance business, we believe we are averaging between 10-15% in upward rate adjustments on top of the rate increases that were already booked in 1999 and 2000. Our sense of current market conditions as far as the eye can see, fell in much of the commercial area in which we operate is that we should be able to continue improving rates as well as risk-selection well into 2002 for both renewals and new production. I think that means that for those parts of our property and liability business that has been most in need of ready terms underwriting corrections that we should be able to reach our objective of an aggregate rate increase of 35 to 40% over the 1998 baseline we have done from 1999 to, hopefully, the end of this year's minimum. So again, we are pretty confident that we are getting closer to underwriting profitability, and as yearend 2001 rolls along, and we feel that we have a good shot at top line growth and the themes for 2001 in its totality. As I have indicated, our mortgage guarantee results were somewhat stronger than we had expected at the beginning of this year, and while the employment pictures we see at nationally is likely to deteriorate as we move down the year's calendar, we are not expecting a major rise in this segment to claim ratio. We have a very strong reserve position, which should provide no surprises going forward from that standpoint. Our expectations continue for moderate top line growth and well contained expense ratios, and together with, as I say, with controlled claims costs, the combination should produce a good level of mortgage insurance profitability for the rest of this year. Refinancing activity and better housing trends, as you saw, they were unusually strong in the first quarter this year. Those are both driven by falling mortgage rates, which should, as has been the case, historically augur quite well for our title business and while our claim costs cannot remain forever at the extremely low levels they have reached in recent quarters, as I had said before, they were down to 3.8% in the first three months of this year. We feel pretty confident that greater top line growth and continued expense control should enhance all opportunities to build our title bottomline to a much higher plateau. Going into the second quarter, our direct business order accounts are 67% higher roughly than they were one year and about 74% higher than they were in the final quarter of 2000. So therefore, at least for this year's second quarter, we are strongly positioned to deliver, I think some very good title insurance revenue growth in this part of our business. So when you put all of these expectations and assumptions together, I think that with respect to our three largest segments, we have the makings of some pretty positive overall growth for our business for the remainder of this year. So we are as optimistic as we have been in the longtime now. Things are working now pretty well for most parts of our business. This is the extent of my comments and so as usual, we will open up this call to any questions that you may have, and we will try to answer them.

Thank you, sir. If you have a question at this time, please press the #1 key on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. If you are using a speakerphone, please use the handset before asking your question. Our first question comes from Nancy Bonacio of MacDonald Investments. Please proceed.

Good afternoon.

Hi, Nancy.

And, congratulations on a very, very good quarter.

Yeah! Thank you.

A couple of things, just if you would go a little bit more on the general insurance side, and you indicated that you have been pleased certainly with top line growth and the combined ratio. Again, if you could clarify, are you starting to see at all, any of the competition coming into your line, beginning to undercut at all? We are starting to hear a little bit of, I am concerned about that arbitrarily and just wondering if you have seen that at all or when you would anticipate that you would start to see that.

No, unfortunately, as a matter of fact, if anything, the reverse is true. I mean, you know, I will try to stay in touch with the troops, you know, on a very current basis and everything we see here is pointing to the opposite direction, and so far as the areas that have not seen any operations. We are seeing a few companies here and there, mostly smaller regional companies jumping in some of these areas, but they are not having much of an impact, and as I say, the fact our persistency, our account retention is turning around very strongly, and while it is nowhere close to the 90% plus that we have, typically experienced in most of law businesses in general insurance over the years, there is no question that it is no longer falling, and it is more than stabilized now, it is going up, and that is the best indication we have when our customers understand that they do not have much alternatives, and they cannot chop the product around to the same extent they were a couple of years ago. Also, we are getting opportunities to write businesses that what we consider to be are very good rates, and that is also an indication to us that there is very low monkeying around taking place. So, I do not see the kind of problem right now that you are leading to, Nancy.

Okay, and in the first quarter conference call, I think you indicated you have been increasing your focus on some of the specialty lines. Wondering if you are still doing that.

Absolutely, that has not changed at all.

Okay, and then also could you give us a sense of where reserve adequacy would be today, and just a general feel as to the trend in severity that you were seeing versus sort of a quarter from the quarter of the last year.

Well, unfortunately, to address the second part of the question, severity does not seem to abate at all. We are still in a very bad situation in terms of experiencing severe cases, particularly in our trucking operation or truck-related businesses, and therefore that is what gives us, you know, the impetus to continue and be very stringent on the query and on the pricing, as well as being very cautious on the types of accounts that we underwrite. In terms of rate adequacy, there has been no change in, you know, I think we reported during 2000 that while we seem to have reached bottom at the end of 1999 in terms of not having had this same high levels of redundancies, but not at the same high levels that we are detecting that our redundancy trends are improving, so that gives us a great deal of conflict that reserving should not be a source of adverse, you know, surprise in so far as our general insurance or title and mortgage guarantee reserves are concerned.

Thank you, and just one other last question, I want to address this question on the mortgage insurance side and the title side, is there some interstate level or housing level that would make you become a little more concerned about the outlook for this year, I mean, it has really been a wonderful first quarter.

Well, if I understand the question again. You know, again, so long as we stay below 9% for mortgage rates, that makes the assumption of mortgage obligations by people, you know, very durable. That is only when you exceed that and we are a long way from that. So, here the main concern we have particularly with respect to mortgage guarantee insurance is that, you know, if this unemployment/disemployment trends should continue in a significant level that is bound to have an effect on claim ratios.

Thank you very much.

Thank you. Our next question comes from Greg Peters of Raymond James. You may proceed, sir.

Good afternoon, Al.

Hi Greg.

Pretty bullish comments there towards the end of the call. A couple of questions. I have not really heard you talk about the risk management side of your public housing business in a couple of quarters. Maybe you could swing back and give us a sense on how the prospects are at that particular business side right now, and secondly, when I wanted to 10-K a couple of weeks ago, I noticed that even with the dramatic improvement and the combined ratio last year, that the last ratio for great bust and commercial order still was relative high on a historical basis and I was just wanting to get some sort of sense of when you thought you might get that down from what the 91% posted down to a more reasonable level at least on a historical basis.

Well, I think you are going to see, you know, if you look at our automobile, addressing that part of your question first, if you look at our commercial automobile loss ratios, they reached let us see, if you will, of about 99% for the combined liability in physical damaged portions in 1999 and they dropped to about 90-91% in 2000 and I do not have exact figures for the first quarter here, but you know, do not hold me this, but I think they are in the mid 80s. So they have continued dropping, and so I think we have a shot of getting down to an 80% loss ratio, which when combined, you know, with the other parts of that business, makes for very vibrant truck insurance bottomline. So we are headed in the right direction there. In the risk management area, as we reported last year, because in particular, of market dislocations and the flight to crawl the indent they typically caused, we did have an opportunity last year to increase that part of our business significantly and that opportunity has continued, though at a some other related level in the first quarter of this year, but, to give you an idea, we have gone in roughly 12-15 months time from that business records hinting roughly 25% of our direct volume to currently 27-28%. So we know, we are beginning to experience some pretty significant inflows now. That does not tell us the whole story because a lot of the risk management business today is written on the basis of high deductible policies, which do not, you know, produce the same kind of direct premium volumes so, I suspect that portion in terms of gross exposures of our business is even greater than as indicated by the rough, raw premium numbers. It is earnings relief for us as analysts based on the reported numbers to sort of pull out, you know that, because again part of that business, as you know, involves in fact an element of risk-taking on our part were at re-insurance late as you know, typically excess of $500,000 and those premiums therefore get booked just like any other premium. Years ago, when a lot of risk management business was written on the captive insurance company basis, you could in theory, you know, yank out re-insurance ceded to captives and pretty well reach a conclusion as to how much our direct was in fact of risk management nature, but today with lot of the business, I say, written with high deductibles and pay loss rectals and what have you, were captives that are involved it is extremely difficult, if not impossible to do what you are talking about.

Two other followup questions. I appreciate your response on the trucking side, and in your opening remarks, you talked about some issues affecting or possibly affecting the Workers Compensation side of business, which are much smaller portion of your business. I was wondering if you could provide some of the same loss ratio commentary, because that particular line, obviously worked against you, has been working against you for, you know, the last couple of years and then just with my other followup question. In your opening remarks, you also talked about I believe, some increased retentions, possibly benefiting the top line general insurance scheme. Could you provide some more clue there in exactly what happened and where your retentions went from to and what the, you know, the impact was on the top line there.

I wonder if I can answer all those questions, but let me try here. With regard to the Workers Comp., which is as I say is roughly 15-16% on net, that loss ratio which had been in the low 70s and mid 60s for a number of years started to deteriorate in 2000 and as you can tell , I am sure from the statistics that are published in our convention statement, they were roughly, we had a loss ratio of about 89% in 2000, and again I do not have an exact number for the first quarter of this year. I have got no rough data so far, but if inching a little bit down from there, but a quarter does not make a year, so I would suspect that this year might be slightly better than that, but not much better because it takes a lot longer to effect premium rate collections and Workers Comp. than it does in the other parts of our business. On top of that, for quite a number of years particularly in the late 1990s for our sales as well as the rest of workers compensation writers we had very favorable experience coming through on so called involuntary market pools, and with the business souring all of those pools are no longer providing the kind of positive input to our bottomline that they were, if anything the worry always is in a tough market as were in now that those pools might well produce negative impact meaning, you know, adverse loss experience. So that in combination with the fact that as I say, that it takes a month-year timeframe to obtain rate relief in Workers Comp is what leaves me to say that it is going to take a couple of years before we see that the time is here.

Before we move on to my next question on my follow question here. You are not writing California Workers Compensation.

No. We have, if you will look at our stats, you will see that we do write some California Workers Comp., but that clearly, 100% of it is done with Captives or retrorated deals so we have very low exposure in that state as is the case with Florida, which is another nasty state right from the compensation standpoint.

The second portion of my question ...

... is on the re-insurance impact and I do not have exact numbers, but again, here, it is suffice to say, Greg, that for the last three or four years in particular, as I am sure you will recall, all are being reported. We have had a steady increase in our retentions. It has not been across the board. The first one to go was Workers Comp., where we effectively increased it to a million bucks per claim and we have in, I would say by now, for most parts of our business with some of it hitting 2001, in particular, in the automobile liability truck insurance in particular area, we have expanded those retentions to $million range as well. So there is no question that on net premiums earned are benefiting to some degree if I were to make a guess, it would be no more than a couple of percentage points of that 15% that I allotted to. So in fact, you know if you take the 18% and you take roughly about 2.4% or thereabouts for the nonrecurring carrying change and perhaps as much as two points. It takes you down to what I think you are trying to do, which is to try to figure how much is the true increase if you pick on the consistent basis of __42:40__.

Yeah that is right and thank you very much.

Thank you. Our next question comes from David Graceman of __00:00__ You may proceed, sir.

Good afternoon, Al.

Yes sir, how do you do.

Pretty good. I had a question about our board transactions in mortgage insurance.

We do not have any.

You are not involved.

No sir.

Okay and also just if you could give us a little color on what you are seeing with regard to contract underwriting and tell us how it is going to reflect on you?

Well that is about to pick up some, David, you know, and that is a reflection of the greater activity that we have, and I guess the only thing I can say, is that we are approaching this thing, we think, much more intelligently this time around than we did the last time around. We are much more attuned to cost-benefit relationships. I think we have put together some pretty fancy systems and methods of cost accounting, so we are going to be able to better gauge you the benefits that we get out of spending that money. There is no question that there will be some upward pressure on expenses, but by the same token, if we are doing the right job, as I see, in analyzing where we offer those services, we should get an offsetting increase in revenues as a result.

Before I move to board transactions, are you looking at all _____ 00:44:17 ?

Yes, this fall we have not _____ 00:44:21

Thank you.

Yeah.

Thank you. Our next question comes Bill Lemell, May-Davis Group. You may proceed.

Hello.

Bill, how you are doing.

Pretty good. This was a good quarter. I was surprised at the onset there, when you said that there was continued tightening in the commercial market. Could you make brief comments on that?

Well, there is no question that, as we have said in the past, you will recall that the professional re-insurers are having an impact on the primary companies and at all levels whether it is personal, automobile or whether it is trucking insurance and so forth. And I think in all certainty that is the reason why you see people such as ourselves as well as others retaining more of the business, because the pressure is very intense and obviously we feel that at this time it is also to our favor to retain more business because we feel very comfortable with the rate structure that is emerging. There is no question also that, if you look at any number of independent studies that are floated around relative to the level of reserve adequacy or lack thereof, there are increasing concerns that reserves are not what they are ought to be in many parts of the industry and obviously that is creating pressure on companies to you know to get more money out in the front door in order to pay for some of those emerging sins of the past. So I think you know to some degree you have the stock market and companies that have more equity exposure than we do obviously are feeling some heat from declining market valuations, which have an impact on their capital structure and therefore their ability to carry business. So you have a confluence of those key events that seems to me that is causing this market to stay in what we refer to as a pretty tightened state. The difference between now and the last debacle, the last market change we had in our industry in 1985-86 is that this is much more of a gradual and less painful insofar as the insurance buying public is concerned event, in that it is taking place you know we ourselves have made comments about taking a couple of bites at the apple in order to fix our problem. In 1985 and 1986, all we did - ourselves as well as the industry - is take a single bite basically and we fixed it pretty quickly. This time it is going to take two and a half bites to get it done. But nonetheless it is getting done and it is going to get done.

Thank you very much. A.C. Zucaro Yes sir. Patrick O'Brien/O'Byron,, Delaware Investments.

My question has been answered, thanks.

Okay.

Thank you. Our next question comes from Jeff Dunn, Corning & Co.

Just a quick question on the MI business. I think you indicated that you expect a lot of paid transaction to remain somewhat stable if not deteriorating a little bit throughout the remainder of the year. Can you just comment on what we see geographically and what areas you are keeping an eye on outside northern California.

Well, there is, you know, it is always a tough state for many lines of insurance, including MI, so we are certainly keeping an eye on that. The North East, in particular in New York, New Jersey, and Connecticut areas, and Boston areas, are of some concern, particularly if you have an escalation in the unemployment area. But otherwise, you know the rest of the country looks pretty good.

Okay and then you mentioned an increase in title orders in your comments. Could you please repeat that number for me?

I think I was comparing the numbers on our direct business, which as you know - in our case as well as the rest of the industry - is the only number that has credibility, because it is tough to get similar numbers with respect to the businesses produced by independent agents. The comment that I made, as I look at my notes here, is that from the standpoint of ordered accounts, they are 67 % higher in the first quarter in this year than they were same quarter last year and they are about 74% higher than they were in the final quarter of 2000. Obviously, the import of this statistics is that as you know there is a time lag of anywhere between 45 and 90 days between the time an order is opened and the time that it is closed. Therefore it gives you a look as to what the likely trend is going in the top line for the following quarter.

Okay, thank you.

Yes sir.

Our Final next question comes from Ira Zuckerman, Salt Lake Securities

Hi Al.

Hi Ir. Long time no hear.

Old proverb. Better if we sailed and hear from the horse's mouth and remove all doubt. You mentioned that the stock repurchase program is on hold at this point. First of all, what is your premium surplus on a statutory basis, especially with the new rules, and given the fact that the stock is still at very reasonable levels, do you have any plans to resume?

At the current rate, our premiums written to account on surplus will likely be 0.9 to 1 or 0.95 to 1 for 2001. So we have got a lot of firepower there. However, as you know, in our case, because we are primarily a casualty-oriented underwriter, the ratio of claim and claim expense reserve to capital and surplus is a much more telling and important ratio, and there we are at 125 or thereabouts, so we still also have firepower left there. As to your question as to when we might resume our stock buyback program, right now we have got it on hold and it is likely to stay on hold so long as we see opportunities to write more business which we are seeing right now. So what I am saying is that we are willing to live with a degree of more than adequate capital for a period of time in anticipation of using it in the foreseeable future.

Thanks very much, Al.

Thank you. Once again, ladies and gentlemen, if you have a question at this time, please press the #1 key on your touchtone telephone. The next question comes from David Anthony of _____ 00:51:55 You may proceed, sir.

Your commercial law and long-haul trucking business...the amount of rate increases, when you quantify, I think 35-40% over the 1999-2001 period?

That was not just on trucking, trucking it is basically a big part of it, okay?

But how much of that would you say you have got in commercial and what is going on in pricing? Is it pretty much flattened out or are you still raising prices?

No, no, we are still raising prices, no question about it, and are fully intent on continuing to do that until we have achieved that 35-40% aggregate increase using 1998 as our base year.

Are you still in the 10-12 or so surplus range right now?

Yes, sir.

Are you picking up any new business in the market or are you pretty keeping your retentions pretty level right now? A.C. Zucaro No, what I am trying to say, Dave, is that one, retention rate is on upswing, as you may recall from past conversations. We were down particularly in that business to the 70% level, and now we are in inching towards 80%. We still have ways to go before we get back to the 90% or thereabouts levels that we have enjoyed for many years. Secondly, I think I also said that we are getting opportunities and are taking them to write certain types of accounts that are new to us.

Okay. Thank you. A.C. Zucaro Yes, sir.

Thank you. Our next question is a followup from Nancy Bonacio, MacDonald Investments. Please proceed.

Al, just a couple of other quick things here. You indicated, in terms of the loss ratio and the general insurance book...any impact at all from weather that was significant in the first quarter, and, more importantly, in April, there have been a number of storms in a couple of companies that talked about any debt will give you a little bit of concern here?

We did not detect that first quarter results from a severity standpoint were any worse than there were in the fourth quarter. We think it was profit, of course. And also, when we look at severity with, you know we are looking at it in the perspective of what severity trends were for the prior two years, 1999 and 2000 in particular, and we are detecting nothing there. So it is more than just weather that has affected that.

Okay, and this is the last question. On the litigation, you indicated to date you have $40 million dollars that you can point to as either reserved or paid. Would you be willing to say how much would be in reserves at this point?

No.

Okay, thank you.

Aha.

Appreciate your comments.

You are welcome.

Thank you. Sir, this concludes this question and answer session. Would you like to proceed with any closing remarks?

No, I have none, and as always we appreciate your taking the time to visit on this quarterly update on our business. Thank you very much.

Ladies and Gentlemen, thank you for participating in today's conference. This concludes the program and you may now disconnect.