Old Republic International Corp (ORI) 2002 Q2 法說會逐字稿

Good afternoon ladies and gentlemen. My name is Paul and I will be your conference facilitator today. At this time I would like to welcome everyone to the Old Republic International second quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question and answer period. If you would like to ask a question during this time simply press star and the number one on your telephone keypad. If you would like to withdraw your question press the pound key. Thank you. I would now like to introduce Ms. Leslie Loyet of FRB Weber Shandwich. Miss Loyet, you may begin.

Thank you again for joining us today for Old Republic International's second quarter conference call to discuss second quarter results. This morning we distributed a copy of the press release and hopefully you have all had a chance to review the results. If there is anyone on line who did not receive a copy, you may and access it at Old Republic's website at WWW.Old Republic.com or you may call [Camielle Patel] at 312-640-6771, and he will send you a copy immediately. Before we begin, be advised that this call may involve forward-looking statements as discussed on the ad 3 page of the press release. Risks associated with these statements can be found in the company's SEC filings. Additionally, we want to let people know that the information and statements made during the call are made during date of the call. Listeners listening to he replay should understand that the passage of time by itself will influence the quality of the statements. The content of call is the property of the company and any replay or transmission of the call may be done only with the consent of Old Republic. With that I'd like to introduce management. We have Al Zucaro, chairman and chief executive officer. I'll turn the call over to him for remarks on the quarter and then we'll open up for questions. Al, if you are set.

Yes, I am. Thank you Leslie. And good afternoon the everyone. Big picturewise. I think that this morning's earnings release showed quarterly and first half consolidated results for us that were very much in line with our expectations at least in total. But the pieces, however, property and liability of general insurance, as we refer to it, was a little bit below where we thought we would end up, while our mortgage guarantee and title insurance businesses were about 12 to 13 percent higher than we had anticipated at the beginning of the year. In general insurance, all, I would say all except one key indicator of performance continued in a very positive vein through the end of June of this year. On average as you can see, earned premiums for each of this year's first two quarters grew at about a 16 and a half percent rate which is about the same average quarterly rate we experienced in 2001. This means that we're still able to exert upward pressure on premium rates for most product lines at Old Republic, and while the rate of increase, as we mentioned on several past occasions, the rate of increases that we're getting on the various coverages or types of businesses we write are not uniform, my educated guess is that we're obtaining a blended or composite rate increase, if you will, in the mid teens for our overall gross book of business. Other positives on the production fronts I think are the continued rise in our renewal rate which has now crosses the mid 80s, as you may recall from past conference calls we indicate that had our renewal rates dropped from the 90s back in 1998 or thereby for most of our business down to the 70 level. So we made a lot of progress during the last 18 months or so. And as a result of the hard market it's enabled us to jack up that rate to the mid 80s, as I say, currently. And further, that's being enhanced by our continued ability to write new accounts in most of our specialties. The general insurance claim ratio, as you see from the stats we put out this morning, has continued to drop. It reached 72 and a half percent roughly in 2 Q, 02, which is one of the lowest quarterly or annual rates for that matter that we've experienced since the mid 1990s. I think that this down friend is reflective of obviously the compounded rate increases we've obtained in the past 30 months or so since we started this process of reunderwriting and repricing pretty much our entire book of property and liability insurance business. And I might also note that it's being posted again in the context of positive developments of prior years claim reserves. So we are in a good position from that standpoint of having the benefit of rate increases beginning to fall to the bottom line without being adversely impacted by prior years' loss reserve deficiencies. Paid loss ratio. Those trends have remained within incurred losses, meaning they are below the incurred loss number. And so far it's about 66 percent in this year's first half. And that compares to about 76 percent in the same period of 2001, and almost 73 percent for all of last year. So paid loss ratios have trended down for quite a nup of quarters now. So what this implies and actually means is that we're continuing to add measurably to our loss reserve account. Our production and administrative costs, I think, are under good control in the face of this double digit growth in our top line. And as a resulted expense ratio for this segment was 26 percent or thereabouts for this year's first half. And this is down from an average quarterly rate of about almost 27 percent for all of the 2001 quarters put together. So that looks good. And as you may recall, our objective as we publicly stated it, our objective at the beginning of this year was to post a combined underwriting ratio between 98 and 100 percent. So obviously we've met the lower end of that target range in the first half. And we feel very confident in our ability to stay in that range for the year as a whole. In the past 18 months or so we've had positive operating cash flow in this segment of our business of almost 275 million dollars. And of that sum, almost 200 million dollars has found its way to our cash and invested asset base. And yet when you look at our net investment income, it has not budged at all in the intervening quarters. And this of course represents in our view the only significant negative among key performance indicators for this particular segment of business. As we said in the past, this lack of help, if you will, from the investment side of our general insurance business is what differentiates this most recent cyclical up turn from the other that we experienced in the past. Most specifically the 1985, 87 cyclical turn, we continue to think, therefore, that this factor which applies industry wide as you know, will be a significant reason for a much longer perpetuation of the hard market we're in. It, I think, is going to force companies in our industry to adhere to stricter pricing and underwriter standards because there is this realization that if you don't make it on the underwriting sides of the business you sure as hell can't look to investment income to save. On the other hand, it is also true that if we had the benefit of investment income, that the positive impact on the bottom line would obviously be much better than it is. Turning to our title business. Revenuewise it's our largest segment, as you know. And its results so far this year are pleasantly above the levels we hoped to achieve as of the beginning of 2002. As you know, mortgage rates have inched down some more during 2002. And this has resulted in the continuation or the revival, if you will, of a reasonably strong housing market and, more importantly, in a relatively high utilization of mortgage refinancings by American households. As you see in the press release, we've kept the lid on expense growth this year so far. So that the title segment expense ratio has remained relatively static at levels more or less identical to those we posted last year. As we've noted in the past, it would have been unrealistic to expect our title claim costs to rest at the extremely low four percent loss ratio area that we posted in 2001 in totality for those two years, and indeed in the most recent two quarters a you can see, it has inched up to an average of about 4.8 percent. And again, as I think we've expressed in the past, we did expect this upward trend to continue over the next several quarters and perhaps level off within a range of six percent or so during the next 18 months or so. Incidentally, the title paid loss ratio was 3.4 percent for all of 2001. And it came in at slightly higher, 3.8 percent for this year's first half. So with a 4.8 percent incurred loss ratio as I just indicated for the most recent two quarter, you have an indication there that we are still building up our loss reserve position in title insurance as well. Our biggest bottom line contributor for the past three years has remained firmly entrenched in that position for the first half of this year. Mortgage guarantee earned premium growth trends continue at very low single digits, as you can see. But the combination in this particular segment of greater investment income and a very low claims ratio is boosting the bottom line growth at a rate higher than one might expect from the, if you will, pretty lethargic top line. The reasons for these trends are the same as they have been for several quarters now. First of all, net premium growth is being inhibited by greater captive reinsurance section which as you know we and the rest of the industry have reported upon as a reasonably new phenomenon in mortgage insurance for the last three or four years or so. And as well as a relatively low persistency rate which dropped to a low of 62 and a half percent in this latest quarter from about 65, 65 and a quarter percent or so at year-end 2001. And as in the recent past, this trend to consecutively lower persistency rates does result from the strong refinancing activity which tends to - has a tendency to deplete mortgage insurance companies bank of in force policies. And in this, I might also note that compared to several major MI competitors, we have been woe fully slow in pursuing so called bulk insurance pools as a new source of business. And while we're now participating in this area to a larger degree than we were let's say throughout 2001, premium production or additions to in force from this source are still a small number for us. And I have to say that we're still not inclined to be particularly aggressive in this area until we have a greater confidence level than we currently have in the pricing structure as well as the expected performance of these particular pools of mortgages. So we're going to be much slower out of the gate. And as a result we're not going to be able to impact our top line to the same degree as some of the major competitors have who have jumped in this in area of involvement to a much faster and higher degree than we have. Investment income growth is more positive in this segment because cash flows have been the strongest here in the past 18 to 24 months. And in that 18 month period in particular they have served to increase our invested asset base by almost 20 per. Which is a much greater percentage increase in invested assets than we have experienced in either title or general insurance area, even though both of those businesses have also produced positive cash flows. With regard to mortgage guarantee, also our low delinquency rate stood at 2.67 percent by the end of June. And it was still below the 2.84 percent rate we posted as of year-end 2001. So as a result, our loss reserve provisions that we've had to make so far this year have of necessity been lower and have caused the reduced incurred loss ratios of about 12 percent that you see in our financial statements being posted for the year to date period. From production and administrative cost standpoints we've been able to maintain that relationship to net premiums earned below our bogey of 30 percent so we feel good about that. So when you take all of these particular ingredients together it produces a very satisfactory composite underwriting ratio of about 40 percent year to date, which is down from almost 45 percent at midyear 2001. And as I say, when you marry that very fine underwriting performance to some reasonably good investment income production, you've got a very competitive bottom line effect for the year to date period. Turning to our consolidated situation. Balance sheetwise, I should note that we've increased our consolidated exposure to equities moderately in the first six months of this year. But common stock still represent less than eight percent of our cash and invested asset base and less than 15 percent exposure of our shareholders equity account. I have to admit, however, that our experience relative to our stock investments is not as bad as the overall markets. But it's nothing to brag about. These, as you know, have been tough stock markets. But we think we are buying good quality issues that should prove themselves over the long term. As you've seen in the release, consolidatedwise, even though the amounts pertain to our general insurance business, we recognized a tax benefit of almost 11 million dollars when we received the check from the IRS in the second quarter. The recovery, this particular recovery stems from some pretty arcane tax issues that relate to tax changes that took effect as of year-end 1986 and pertain to the discounting and deductibility of property and liability insurance reserves for tax return purposes. Historically at Old Republic we've add heard to the tradition that when it comes to tax accounting issues in particular in our dealings with the IRS, we adhere to booking possibly favorable recoveries when we reach a very high threshold of certainty, whereas we will tend to book possibly unfavorable developments pretty immediately. So that's why you've got this kind of delayed reaction. We wanted quite a bit of certainty before we recognized this recovery. And of course there's nothing like a check from the IRS to make it reasonably certain that you're going to prevail. Based on first half results we see no basis for changing the immediate outlook for our company's business. Specifically, we continue to think that our general insurance business is more likely than not to produce positive underwriting results with the composite ratio, as I said before, that would fall below 100 percent for the year as a whole. And we made good progress toward that objective as you see for the first half of this year. Premium revenuewise. I think that the year over year growth trends through June of this year are probably a pretty good proxy for the second half of this year. And again, as we said on several occasions, we see this as an absolute necessity given the fact that there is little opportunity for investment yields to improve any time soon given the enunciated position of the fed. It doesn't look like yields are going to rise very significantly for the for seeable future. In title insurance, we still don't believe that second half comparisons are going to be as positive as those of the first half of this year because if you go back to the final six months of 2001, the title industry and ourselves as a part of it benefited from a red hot refinancing boom which I don't think is likely to be of the same magnitude in the second half of this year. So I then it's going to be slower going. But nonetheless we think that profit margins should be at reasonably high levels in title insurance. And finally in mortgage guarantee. I think for sure that the second half of 2002 is likely to mirror the results we've posted with the first half. And that's going to be, again, I think, aided by our expectation of a very low loss ratio. And containment of expenses in the context of a slow going at the top line. And some better input, stronger input in this segment from the investment income side of the business. So putting together these pieces from the three major segments that Old Republic should produce second half results that I think will complement very nicely those of the first half of this year and produce a nice bottom line for us for the year in its totality. From a financial condition standpoint, our latest balance sheet that we will publish shortly will show us inching towards just a few million short of three billion dollars in shareholders equity. So we fully expect to break through three billion dollars before the year is out. I have to see we get great comfort from that level of capital given the fact that it's been built up on the strength of what we think is a very high quality invested and other asset base and claim reserve structure that's proven itself over many years and that we don't believe is likely to produce any significantly adverse development. We appreciate that in the context of the current stock market conditions. Stock buy back programs are being resurrected or initiated by many firms obviously view their stock as undervalued. We also think that our stock is under valued and we certainly have some fire power, and I say, in our balance sheet that could be used to accomplish that objective. And we currently have a standing authorization as I recall of about 170 million that could be put to work in a stock buy back program, resurrecting one, I might say. But at this point, as has been the case now for a year and a half or so, we still think that we can employ our capital resources gain fully in our existing businesses, and therefore we are not inclined at this point to dispose of a part of that capital through a stock buy back resumption. As I look at my notes, that's about the extent of what I was prepared the address in this conference call. So as Leslie said earlier, I guess we'll open it up now as we always do to any 00:25:16 questions you might have.

At this time I would like to remind everyone, in order to ask a question, please press star and then the number one on your telephone keypad. Your first response is from Ms. Nancy Benacci of McDonald investments.

Congratulations on a good quarter. A couple questions on the general insurance side first. Could you talk a little bit about where the growth is coming from. I'm assuming it's still pretty much what we've seen in the past mostly from the commercial auto side. And then could you give us a flavor of rate activity. Is it much bigger in the commercial auto side, and are you starting to see any competition coming into that line at all.

We are and have been getting growth from our commercial auto. And I apologize if I've misspoke in the past. But our growth is not predominantly from that area, Nancy. It's coming from such areas - it's coming from ENO, DN O coming from home and automobile warranty lines, coming from some of the specialty industry, you know, specialty industries that we have at Old Republic such as the contractors' business. Our workers' comp even though it's currently a problem line is growing some. So it's pretty much across the board. Bear in mind also. And perhaps it's a point I should have made before too. Last year we terminated almost 50 million dollars worth of business in a couple of areas that were not - had not been performing very well. And we just threw in the towel. So that the growth you see today would have been even more accentuated if you eliminated from last year's base numbers the premiums that we have in fact lost voluntarily. I might also add, as I said in the past, that we are getting strong growth and continue to get strong growth in our so-called risk management area or the use of alternative market techniques for providing the insurance needs of major US corporations. So what I'm trying to say is that it's not solely a commercial automobile even though that as a line it still represents the biggest part of our business that is producing this kind of growth in premiums. To address your other point about rate activity, as I tried to say earlier, it is not uniform. But I will say that certain lines, for example, such as the errors and omissions, and directors and officer responsibility line are still experiencing 50 and above percentage increases in premium rates because of some of the market dislocations that have occurred as a result of the ongoing scandals that seem to be, you know, scandal du jour type of thing in our economy for the past number of - for the last quarters.

Based on your comments, do you - you had indicated you thought you would be in the range of the 98 to 100 for the rest of the year. Do you anticipate as you look out into 03 that that range goes down to 96 or 98, or do you go think the best we see is kind of the 98 kind of number.

Well, it all depends on what you have to do, where our business growth comes from. To the extent that we accentuate workers' comp, and we might do that because of a perception that perhaps that line is going to start improving, the loss ratio content of that line is higher so that might jack up our combined ratio. But not necessarily. By the same token, might improve. Could likely improve cash flow and perhaps any increase in the underwriting ratio would then be offset by some growth in investment income. So I guess what I'm trying to say is that it's hard to say base I don't really know for sure which parts of our business are going to grow faster than the others. But I think it's a safe bet, at least we are organizing and planning on the basis that the hard market that we are currently in will last well into 2003 and will continue to provide well positioned companies such as ourselves an opportunity to increase their share of the particular markets they are interested in.

Great. Thank you for your comments.

Your next response is from Mr. Jeffrey Dunn of Keefe Bruyette.

Hi Al.

Hi Jeff. How are you.

Great. Thanks. Just a quick numbers question. Do you have the paid claim rate for the mortgage business?.

Yes. How did I know that you were going to ask that question. They were 14 in 1Q '02 and 16 in Q2 '02 and 15 for first half, 15.2.

Okay. And as far as the book that you have written so far are you trying to stick towards the prim things or are you indeed writing sub prime.

No, we try the steer away from that. And as I said before we're trying the stay in close proximity of our traditional business which is a little difficult to do, but that's what we attempt to do.

Is there a meaningful share of your insurance in force yet.

No, it's not material at all.

Okay. Thanks.

Yes, sir.

Your next response is from Mr. Bill la Mel of May David group.

Hi, Bill, how are you.

Fine. How have been.

Good. Thank you.

Congratulations on your results.

Good. Thank you.

Just wondered if you had any color for us or comments on the Munich-re two billion dollars contribution to American-re. It seems to me it's so large that American-re would be in out of their mind if they didn't do that.

Well, it is a huge number. And as you know, other reinsurers have posted similarly large numbers. And incidentally, I think that's obviously going to keep the pressure on those reinsurers to get more rate from prime re companies. And as we said before, Bill, I think this is the first time in many many years when we as an industry on the primary side is can look to the insurance industry to be much more of a martha net than it's been and therefore have an impact on what prime re companies do on the gross premium rates because they are going to have to get the money someplace to pay these reinsurers in need. So again, I think from the standpoint of the expected longevity of this hard market, I believe that the difficulties that are encountered by the Muniches, and it's pretty much all reinsurers, as you know, is a positive in terms of insuring their longevity.

Thank you. Also recently vibes vibes from the customers about title business picking up once again here in the summer with the bond market being the way it is, but I take it that your stance is that will keep you going okay for the year but we're not going to get any substantial growth out of that.

Well, no. What's driving this renewal of interest or utilization of refinancing opportunities is the fact that mortgage rates have dropped some more. They are down to, what, six and a half percent or so. And that's fueling this renewed interest. And you do have to ask yourself ultimately, they are going to stop dropping. And then of course, the game will be over insofar as refinancing is concerned. But I think it's safe to say, which I think is what you're implying, is that we're going to be good for the rest of this year. But I still believe, as I said earlier, that - I just can't get overly excited about the level of refinancing in the second half of 2002 reaching the same feverish pitch that we experienced as an industry, as a company and as an industry, in the second half of 2001.

Thank you, Al.

Yes, sir.

Your next response is from Mr. Michael Diane of Sandler O'Neil.

Good afternoon, Al.

Hi, Michael.

How are you.

Good, thank you.

Congratulations on a good quarter. Couple questions already answered but one question somewhat alluded to. On the workers' comp line what are you seeing in terms of current pricing and trends there as you look out on the horizon. You mentioned that you might be looking to do something in the near future in terms of writing more. I was just curious as to what you're seeing.

Well, it's improving ever so slowly. As you know, that's one of the lines that improves the slowest because you still have to go through quite a bit more of state approvals to change rates. What I should have said is that our interest in writing more workers' comp is in conjunction with existing business. For example, in our aviation insurance, we are writing more comp than ever before. And before we were writing just the haul and the liability. And it dawned on us some time ago that since we are doing quite bit of the same type of underwriting review one would do relative to what one would do workers' comp insurance, say with the six base operators that we insure, that it would make sense to extend the value of that effort to the workers' comp line. And if on top of that you can get that comp in areas where rates are beginning to improve, we obviously think that you've got very much of a double credit in your favor. The same holds true in our truck insurance area. We had been historically reluctant to write comp. We didn't think we had all of our ducks in a row. But we think we've put our ducks in a row in the last two or three years. And again, for the same reason that our people are underwriting those accounts. And we think we can extend the benefits of that underwriting to the comp area in selected states. Not across the board. So those are the main reasons why we expect our comp growth to grow.

Great. Thank you.

Yes, sir.

Your next response is from Mr. John handen of Dirkson company.

Hello, John.

Hi, Al, how are you.

Good.

Congratulations on a good quarter.

Better to be in this position than the other one.

I'll go along with that. Recognizing that investment income will not contribute as much as it has in earlier recoveries, are you still as optimistic longer term on the general insurance and potential to the overall profitability.

Well, as I'm trying the say, John, I think that our ability to, one, grow the bottom line right now, I think we do should be able to grow it at that 15, 16 percent level. And if you can accomplish that with, you know, a 98 percent or so combined ratio, that's going to, you know, at least on an year-over-year basis, is going to afford you some very good comparisons irrespective of what you do on the investment income side. There's going to come a point in time of course where rates will turn around. And there as a relatively short duration investor, you know, we should do well in terms of being able to turn, to roll those investments into higher yielding securities.

That's fine, Al. Again, congratulations on a very good quarter. And just obviously, keep it up.

Thank you.

Okay.

Your next response is from Mr. Greg Peters of Raymond James.

Hello, Greg.

Good afternoon, Al. A couple questions for you. First of all, I noted your comments regarding the company share repurchase program. And I also was listening to comments regarding increased exposure to the general equity markets. And just kind of curious to me, at least, why you haven't invested in your own company stock when you're investing in other company's stock. Do you think your stock is overvalued relative to everything else that you're looking at.

As I tried to say, Greg, we're just making a decision to the effect that the capital that we have right now can be put to work to the best long-term advantage of the shareholders as opposed to using that capital to buy back shares.

Okay. I'm not going to argue about that.

With respect to the common stocks of other companies, that's a separate decision. That's a decision which has to do with what kind of investment profile we wish to have on the balance sheet. As you know, historically we have not been inclined to invest in equities, and even today as I said before, they represent only 8 percent or so of our total invested asset base and less than 15 percent exposure of our capital. So that if you had a 50 percent drop in the value of those equities you would only have a less than seven percent drop in your equity account. So we're not overly exposing our shareholders equity to the stock market.

Indeed that's certainly more favorable than some of your peers like State Farm. But let me switch gears. I was kind of surprised by the top line growth, net premium written result and general charts. I would have expected those to be a little stronger. And I think I understand the moving parts. So I'm just curious if you could give us some added color about that comment you made about the 50 million dollars book of business that you stopped writing. When that was done.

That was done early last year if you recall, Greg. It had to do with grain elevator business and some gas business. Gas and oil business. It had to do with our exit from the reinsurance assumed business.

Right.

[Inaudible] all those announcements were made in the first and second quarter of has year. And an I say, that's about a 50 million dollars business. So when you look at our top line growth particularly, starting especially more accentuated in the third and fourth quarter, that's going to be impacted by the loss of that business.

If we were going to take this out on an apples by apples basis, it might be in the mid teens, we are at mid teens at 13 percent, plus or so. And it might be a little higher than that.

True enough. I was going to, and then I was going to add this, Greg. And it has to do with our so-called risk management or alternative market business. That business plays havoc with our top line on both a premiums written and premiums earned basis and [inaudible], as you know. That business responds on an account by account basis to the loss experience of those accounts. So when your loss ratio goes down on a particular account, there's a good chance that you're going to be returning some premiums. And it appears that therefore it's going to negate some of my premium growth. By the same token if the loss ratio goes up, I'm going to typically get more premiums from retro rated accounts and it's going to enhance the top line. So not to make excuses, but that's always been a problem for us to explain, you know, accurately what's happening there.

And it's been a problem for us to model accurately.

Right.

Fair enough. Finally, I thought perhaps you could provide us with some additional color on mortgage insurance business. You know, sub prime market at least in the credit cards has sort of blown up.

Uh-huh.

There's been some concern that has been extrapolated to the home equity loan market for the sub prime component. And maybe because there's not much publicly available information on the type - on your portfolio of mortgage insurance business, perhaps you could provide us some color there that might provide us with some assurances that your loss ratios or default rates might be better than the industry's at large and certainly those related to the sub prime market.

Yeah. Our default rate, which as I tried to indicate before has been dropping some, is not affected by the bulk or what you might categories as sub prime business because we haven't done much of it. And the little bit that we have so far, which is a very immature book of business, has a default rate attached to it which is significantly below the rate that we are publishing or speaking of when we say, you know, 2.64, 2.67 percent. So unfortunately, because we've not been involved with that, you know, business, I don't know that I can add much color except to say what I said before. And that is that we're not closing the door on the business. We want to be more aggressive. We do think it's a valid area for a MI company to be involved in. But we're approaching it in a very gingerly fashion. And that's why you don't see either the impact on our default rate or loss ratio that you're seeing in some of the competing MI companies.

Let me attack it then a different way.

Okay.

Your loss ratio is in the low teens. And due in part, I imagine, to your strong reserve position.

If you recall, I believe we said this in the first quarter conference call, that we entered 2002 with a view that the Mic was not going to turn itself around and that the unemployment picture was not going to get better any time soon. And therefore, our foot was on the - was not on the accelerator but rather on the brake pedal. And as I recall saying, I believe in the first quarter, that's been a pleasant surprise. Instead of seeing our default rate go up as we expected it to be going up, it has come down. And as you know, at least for the primary business, a mortgage insurers loss reserve, loss reserves respond to two key items: The default rate on the one hand and the expectations one has relative to the so-called cure rate. How many of those defaults are going to turn into honest to goodness claims and how many of them are going to go away because people are going to get a job or find some way of resuming payment on their mortgages. And both of those factors are working in our favor. And that's why when I talk about paid loss ratios being, you know, above the incurred loss ratio, that is always an indicator that a company is in fact not having to put up reserves and may be even taking the reserves down because they are not deemed necessary in the current context.

Gazing into a crystal ball as you like to do from time to time, how long do you think we're going to be in that type of position going forward.

The economy seems to be improving. Perhaps more slowly than people would have liked or expected. And with that you should get an improvement in the employment picture. So I think, you know, for this year, as I tried to say before, for the second half of this year in MI that should be pretty much a mirror image of the first half. And that would imply, therefore, that since the lion's share of the earnings in that line come from the underwriting and related services portions of the business, that implies, therefore, that both our loss and expense ratios in combination should remain within range of what we've posted for the first half of the year.

Fair enough. Thanks a lot, Al.

Okay.

Your next response is from Mr. Jay Weinstein of oak forest investments.

Hi, how are you this afternoon.

Yes, sir.

I'm a relatively new shareholder and I wanted to just get my arms around all bit more about your mortgage business. And I apologize against if you have gone through this call after call because, again, I'm relatively new. In terms of, how do you sort of lump the credit quality of the borrower in terms of over 90, and what's your internal policy in terms of scoring, I guess.

Historically our mortgage guarantee operation has had a bias in favor of higher LTV loans. And our feeling has been that we were getting more than a - more than the necessary amount of premium to cover the additional exposure. And if the past is an indicator, that philosophy has proven itself to have worked out very well given what we're experiencing in terms of loss ratios. So if there is a difference in terms of how our business lines up, least say with that of the competitors, you will find us to be more heavily involved in that part, in that spectrum.

Given the low persistency level because of refinancing, are you finding the same quality of the new business you write versus the stuff is that you're losing essentially.

I would say so because, you know, we look at the in force number. And the in force number, as you know, reflects both whatever you've put on the books now less what you've lost.

Right.

And there has been no change in the mix of our business. I don't have the figures for the second quarter yet there. But through the first quarter there had been no significant change.

How about, is pretty wide geographic exposure. Could you give me some sort of a picture.

I would say that ten years ago our company was pretty much oriented towards the southeastern states which is where the company started back in the early '70s. Today we're very much a national company with a spread of business. And one of reasons is that we tend to fish in the same ponds, same pond as MGIC or PMI or the others. We do business with significantly the same types of producers whether they be banks or mortgage bankers or S and Ls, mortgage brokers or what have you. And as a result we're going to get our share of a national book of business that's produced by those customers. You know, you can't go to a particular bank and say, I'm going to take all your southeastern business and I don't want any of your west coast business, what have you. You're going to pretty much participate across the board particularly when it comes to the large accounts. And that's what has led into the last ten years in particular to the changed mix of our business being pretty much of a national book.

Okay. I appreciate it. Thanks very much.

Yes, sir.

Your next response is a follow-up question from Ms. Nancy Benacci of McDonald investments.

Al, a couple follow-up. On the title side, any update on the legal situation there.

None. Still under appeal. And as you know us by now, we would report very quickly if there was a major change.

Okay. And then just a sense of how much percentagewise, a view of what's in the pipeline right now.

I don't have those numbers readily available, Nancy. But I can say from a trend standpoint, the number of open orders going into the third quarter this year are about 15 percent lower than the open orders at the end of June of 2001 going into the third quarter of last year.

Okay. And then you indicated that you're about eight percent in equities at the moment. What's your sort of parameters of the max that you go to, or with the markets having been corrected recently, any appetite to do that.

We would not go, according to our current guidelines which have been in place for a long time, expose more than 20 percent of our shareholders equity to common stock. So with three billion dollars, let's say, of shareholders equity, that would imply 600 million dollars worth of equities. And currently we're at about 432, as I recall.

Okay. Great. Thank you very many.

You're welcome.

There are no further responses at this time. Mr. Zacaro, do you have any further remarks?

I don't have any further comments. I appreciate the interest as evidenced by the number of questions that we had. And I hope that we gave satisfactory answers to all. And I look forward to visiting with everyone again come next quarter.

Thank you all for participating in today's Old Republic International second quarter conference call. Thank you for participating. You may now disconnect. 00:54:22 >>AL ZUCARO: Thank you.