Old Republic International Corp (ORI) 2002 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen and welcome to the Old Republic International fourth quarter earnings conference wall. At this time, all participants are placed in a listen-only mode. If throughout any point would you like to ask a question, you may indicate so by pressing numbers one followed by four on your Touch-Tone phone. It is now my pleasure to turn the call over to Leslie Loyet.

Thank you for joining us today or Old Republic's conference call. This morning we distributed a copy of the press release and hopefully you've all had a chance to review the results. If there is anyone online who did not receive a copy, you may access it at Old Republic's web site at www.oldrepublic.com. Or you may call Samir Patel at 312-640-6771 and he will send you a copy immediately.

Before we begin, please be advised this call may involve forward-looking statements as discussed in the ad four and ad five pages of the press release. Risks associated with the statements can be found with the company's latest SEC filing. Additionally, the information statements made during the call are made as of the date of this call. Listeners to any replay should understand that the passage of time by itself will diminish the quality of the statements. Also, the content of the call is the property of the company and any replay or transmission of the call may be done only with the consult of Old Republic International. On the line with us today from Old Republic is Al Zucaro our Chairman, President & CEO and we'll start with brief remarks and open up the call for questions. Al, if you are set?

Yes, I am, thank you. As always, I assume that everyone has by now seen a copy of the release we issued this morning, so I won't take time reading it or repeating any part of it at length.

As in the past, I will just add a little color if you will to what's been written and then give anyone interested an opportunity to ask whatever questions may be left unanswered. Well, again, the most unusual item for our business in last year's final quarter as we reported this morning related to the posting of almost $16 million of special charges in our mortgage guaranty segment. This came on top, if you go back, it came on top of special charges of about $4.8 million as I recall in the preceding quarter. Making for a total of about $20.5 million for the year against that segment. The majority of these charges relate to a changed assessment on our part of an industry-wide exposure to litigation related to RESPA regulations, and while some of our competitors have settled or are getting close to a final settlement in this regard, we at Old Republic had basically positioned ourselves in a more aggressive litigation stance, if you will in as much as we believe that the issues that had been raised did not apply with equal force to us. In the past several weeks, however, there have been a number -- a couple of developments affecting some of our competitors' position, and this led us to re-evaluate our own situation and consider the possibility of a settlement. And therefore, we made an estimate and the circumstances it's a best estimate we have of the possible settlement. And that estimate is incorporated in the total charges we've posted.

In addition to this RESPA related set of charges, as you saw in the release we've written off an involvement we've had with a sales related service that we've marketed over the past, oh, 2 1/2, three years or so after concluding that our continued efforts and the expenses attendant to that effort would not produce worthwhile results. In the RESPA settlement, we're aiming through mediation on the steps of the courthouse, if you will, and therefore, we're still in the litigation mode and not totally out of the woods. But as a result, we think it's in our company's best protective interests not to telegraph our settlement number. And it's for that reason that we're not splitting the charge. As I said, though, more than, I think it's safe to say that more than half of the aggregate charge for the year applies to this RESPA settlement estimate.

Having said that, I'd like to talk a little bit more about this mortgage guaranty line while we're on it. Premium volume last year held pretty steady throughout the year. It grew by 7% on net premiums earned basis as you see there for the fourth quarter, and it was about 6 1/2% growth rate for the year in its totality. Our traditional so-called primary new insurance written for the year was up about 20%, just as it was in the fourth quarter of the year. Total new insurance written was up by 37 1/2% for the year and about 16 1/2% for the latest quarter. The lower rate for the latest quarter reflects the fact that we wrote more bulk business in the second and third quarters of the year and a lot less so in the fourth as we saw pricing away, moving away from our minimum pricing requirements.

In the fourth quarter, persistency reached probably the lowest level we've ever seen in our business. It reached 59% and that's down from about 65, 65.3% to be exact at year end 2001. And it reflects as it has in the past the continued high levels of refinance activity, which we and the rest of the MI industry have experienced for a good two-year period now. For the year, our direct primary insurance in force grew by a little more than 11% to $73.2 billion dollars while net insurance in force which takes into account some of the, I mean, which takes into account all of the bulk and pool business and so forth as well as a certain amount of reinsurance seated to captives. Was up by about 15 1/2% to $112.9 billion dollars as of year end 2002. We think that these trends reflect a combination of a lower persistency that I just mentioned as well as the greater amount of bulk insurance production and any pickup might see in market share. We don't have an exact number as we speak. That pickup in market share came on top of a much larger mortgage market for the year. So those are good trends for our business and all go well in terms of our renewal premium flow in the quarters and years ahead.

From a profitability standpoint in mortgage guaranty, we experienced higher operating margin for the year as a whole and a slightly lower level. As you can see again from the staff appended to the press release in the last quarter of the year. If we leave out from both the fourth quarter as well as the full year, if we leave out the special charges that have mentioned and making the comparisons more on apples to apples basis, the combined ratio of claims and expenses for the fourth quarter was 44.5% versus 42.1% in the same quarter of 2001. And for the year in its totality, the combined ratio was 41% for 2002 versus 43.6% for 2001. So these, when you do it this way, these more comparable results reflect a downtrend in normalized, meaning expenses without the special charges, and they do reflect something of an uptrend in the loss ratio that began in last year's third quarter. Even though the loss ratio for the year as a whole was down to 14.1% as I see here from a 16.1% in 2001. So we have what we had in terms of trends was a slight upward trend in the loss ratio and a slight downtrend in the expense ratio.

Those of you that follow our company's fortunes will remember that our stated expectations in the beginning of 2002 were for an increase in claim costs due to our belief at the time that default rates in particular would worsen as the year wore on. And this, of course, did not happen in the first half, but it sure began to creep up in the September quarter, and the uptrend continued through the fourth quarter, as I say. The uptrend we're now experiencing is caused by a rise in the default rate, which incidentally grew to 3.39% as of year end 2002 from 2.84%, that is, at year end 2001. This was offset to some degree by lower claims severity assumptions, which are -- which result from our recurring studies almost on a monthly by month basis of the evolving severity of individual claims and of claims of the claim's population and its totality. The paid loss ratio, incidentally mirrors these trends. And each quarter of 2002, this ratio was in a definite uptrend. It started at 14% in 1Q '02 and moved to 16.3% in the second quarter was down slightly to 15.5% in the Q3 and it marched back up to 18.4% in the fourth quarter, where it basically mirrored the 18.2% incurred loss ratio that's incorporated in the combined ratio statistics you see there for the fourth quarter of last year.

Finally in this mortgage guaranty business, cash flow remained very positive and basically it grew in tandem with our normalized bottom line. As with the other segments of business at Old Republic, however net investment income as you again see from the stats are included, it was basically flatish and it was due again to the low yield environment in which we've been operating and managing the overall portfolios of the organization. While we're on the subject of our housing-related business, our title segment, again, as you can see, was truly the gift that kept giving throughout the year. In a nutshell, it is the most simple business we run at Old Republic. In a nutshell, the key factors that produce the best title results in our history were 30% plus volume increase for the year as well as the quarter. A claim cost ratio that remained in low single digits around 5% or there abouts. And a very tight lid on expenses, which kept the relative to which the growth rate was below the top line growth rate of 30% for the year as I see. The low mortgage rates and the bonanza from refinancing activity were the magic potions, if you will, for our title business throughout 2002. Nothing else needs to be said about the results we achieved. Those were the key factors.

And also, I suspect we can also say that just about everything came up roses, you know, our largest volume business of commercial prompting liability insurance. Premium volume, in fact, came in within our expectation of the 15% to 20% growth rate for the year. That was basically, as I say, our expectation at the beginning of 2002.

Claim costs, they came down, pretty much as anticipated. And again, they were not impacted by costs associated with prior years' claims, deficiencies. And our expense ratio in this line as well dropped below 26% for the first time in many years as we benefited from operating leverage in this segment as well. At a 98 1/2%, almost 98.4% to be exact for 2002 and 96.8% for the fourth quarter of last year, our composite underwriting ratio came well within our expected range again of 98 to 99%, which we had set as our objective and was on our wish list at the beginning of 2002.

As we've indicated in past conference calls and reports we've issued, the worker's compensation line is probably the major coverage that remains a source of concern and frustration for us. The line as you know is prone to disappointment due to slowness of the rate correction process basically it has to be done on a state by state basis. It's also affected claim costs, also affected by inflation for the medical portion of worker's compensation claims. And I don't need to tell you that insurance costs are galavanting throughout the country and that inflationary impact is having an effect as I say on the medical portion of worker's comp. And it's tough to judge, you know, where it goes year to year. And then we have the adverse effect of involuntary market or assigned risk type of assessments. And the potential, also, for adverse claims development that resulted from retroactive certain mandated changes in claim approval standards as they apply as we've reported in the past to some old occupational claims. So while as we've also indicated in the past, a great deal of our work is compensation business is underwritten for large accounts on the so-called loss sensitive basis, that provides for varying levels of retroactive rate adjustments, the portion that we nonetheless write on the traditional risk transfer basis remains a concern for the reasons I've just summarized.

Otherwise, the hard market environment in which we've been operating for at least two years now is providing us with significant opportunities to at once tighten underwriting standards as well as correct any remaining pricing deficiencies. Today, more than ever, in recent times, we think that the strong financial base and a reputation for stability are great assets with which to retain and attract business. And from those standpoints, Old Republic is in very good shape today.

As with our major -- other major segments of the general insurance business produced some very positive cash flows that were additive to our invested asset base. For all of 2002 on a consolidated basis, cash and invested assets grew by about 10 1/2% to almost $6.2 billion dollars with the lion's share of that base committed as has been the case in our situation for many years to high quality fixed income securities. And while as you know yields remain at historically low levels, and the last 50 years or so, the consistency, nonetheless, of investment income from that base should continue to provide Old Republic with a reasonable stability at the bottom line.

In summary, the expense blip in our mortgage guaranty line notwithstanding we closed 2002 on a very high note. As we look forward, our current thinking is that 2003 holds a reasonably good promise of further earnings progress for most of our businesses. At this stage, our title business appears to be in very good shape for the next couple of quarters at least as the order pipeline at year end 2002 was close to or strong as I should say as it was at the end of 2001. For what it's worth, our current thinking is that the second half of 2003 could be relatively weaker as we, for one, find it hard to assume that refinance activity will not subside down the road. And as I've said before, and as you know, refinance activity has been a big part of the top line growth and the bottom line growth of our title business for a couple of years now. On the mortgage guaranty side, however, a lower level of refinance activity should be beneficial to business retention rates. And this factor together with our expectations of doing an increasingly better job of growing our market share as we succeeded in doing in 2002 should produce strong single digit premium growth in 2003.

We think we can keep the lid on the expense side of this business and therefore I think that the impact of a likely increase in the claim ratio should not be such as to produce a very significant rise in the composite ratio. And as to our property and liability business or what we call general insurance, I think that the hard market for most of the liability coverages that Old Republic underwrites should remain solidly hard well into 2004. In our view, the basic reasons for this are that profit margins, as you know, of commercial lines insurers are still in very dire need of fixing. Balance sheet needs to be propped up through greater retained profits to offset the continuing impact of prior years reserve adjustments. It seems that not a day goes by without another big slug of such reserves being charged to one balance sheet after another. And also, we think that the reinsurance markets, and I can personally attest to that for the -- during the 40 years or so that I've been associated with this business, I don't think I've ever seen reinsurance markets in such disarray as they are today. And I think that level of disarray will continue to exert upward pressure on the primary insurer's rates.

So given this frame of mind, I think that our property and liability businesses is very well positioned to produce top line growth of 15% to 20% in 2003, and that I think we have a good chance of posting a composite underwriting ratio between 96 and 98%. Once again, we expect very little help from the investment and income side in this business as well as in the other segments because we just don't see at this point in time any significant upward turn in the yields' on fixed maturity on securities. So in a nutshell, given the relatively unique mix of our business at Old Republic and the prospects I just outlined for you, we're reasonably bullish about our earnings capacity for 2003. That's about the extent of my comments and as was promised early on, we can open up this telephone visit to whatever questions you have.

Thank you, sir. Ladies and gentlemen, the floor is now open for questions and comments. If you have a question or comment, please press the numbers one followed by four on your key pad. If your question has already been asked and you would like to remove yourself from the queue, please press the pound key. We do ask that you pick up the hand set to provide optimum sound quality while posing your question. Once again, if you have a question or comment, please press the numbers one followed by four on your key pad. Our first question of the afternoon comes from Ira Zuckerman with [INAUDIBLE] Securities.

Yeah, hi, Al.

Hi, how are you?

Keeping busy. It's that time of year.

That's good.

Al, on the general insurance, one thing I noticed is you are no longer giving us written premium numbers. Is there a reason for that?

Yeah, the reason we eliminated it, we had it through the third quarter of last year, as you may be aware, the regulators changed the rules on the bookings of written premiums and it was playing havoc in that, you know, we had to increase written premiums and increase unearned premiums with no affect on earned premium. Earned premium in our business, particularly in light, Ira, of the fact we had before as I've indicated before and indicated before quite a number of business -- quite an amount of business, I should say, that's subject to retroadjustments. Those retros appear in earned premiums as well as they do in written premiums so I think the earned premium number is as good a proxy for what's happening to the top line of our business.

The question is, what on the general insurance side, what percentage are your business is now comp and the third question is, asbestos exposure.

Uh-huh. Comp is about 15% or so on the net basis. Gross basis may be a little more than that, again, given the fact that some of it, you know, does not appear in net by virtue of this retrorated business. In terms of asbestos and environment I might add, Old Republic has, you know, basically from a gross standpoint been under, what, $80, $85 million of gross reserves and about $46 million of net reserves as we speak. We've got on a net basis some 18 years of average paid losses for the last five years in reserves. So we think we're in good shape. Again, Old Republic, you know, however it happened, we never were major insurers of the types of industries that have been, you know, the main culprits relative to the emergence of asbestos or environmental claims. Funny, though, I mean, we just got a claims advice relative to a 1949 policy that we wrote for a couple of years for a company. As you know, the game that plaintiff's lawyers nowadays are playing is that they get, you know, companies other than the producers of asbestos elements sued, and I guess we get caught in that net once in a while.

Yeah.

So I don't, you know, as I've said in the past, Ira, I don't think you will see Old Republic announce, you know, anything like a $100 million hit because of asbestos or anything like that.

Okay, Al. Thank you very much.

You're welcome.

Our next question of the afternoon comes from Nancy Binacci with Mcdonald & Richmond Investments.

Good afternoon, Al. I want to talk a little more about the mi charge. And I certainly appreciate the fact that you don't want to break that number down but I guess could you clarify, do you feel that the number that was reflected in the fourth quarter is your sort of final number per se or should we anticipate a continuation of, you know, dollars having to be put out for this charge for this issue?

We try, always to, you know, whenever we've got a major adjustment of this nature, we try to put our best foot forward and, you know, give it our best shot. It's not over until it's over. We're still in something of a litigation mode. There's still reasonable assurance we'll set this will thing within the next few days, and so you've got our best number there.

And that number that you have in the fourth quarter reflects your settlement expectation, correct?

That's right.

Okay, and then in terms of the program that you eliminated in the loan portfolio, are there any other types of issues that are going to see as a write off at this --

No, no. That was, you know, unique, I mean, just a single joint venture and new undertaking on our part to see if we could juice up our sales of mortgage guaranty insurance and it didn't work, you know so we got rid of it. There's nothing else that we're doing similar to that.

On the title side, again, I asked this question a lot, but just again on the litigation, anything new there?

No. As I think we've indicated, Nancy that's on appeal and we expect the appeals to be heard sometime in the springtime. So in the next couple of three months we should hear about that. Okay.

Then just a quick couple ones on the general insurance side. Where do you feel reserve redundancy is right about now?

I don't think there's any change in the level of redundancies that we have, you know, 2%, 3%, 4% in that area.

Okay, then when we look at the nine-month numbers by line and presentation handout that you use when had you were on the road in November, we saw the 99.1% total combined ratio and certainly an improvement as we looked at the end of the year. Was there any major movement between any of those specific lines that you've broken out? For example, you have a 1/10/4 four worker's comp, can you give us a sense of what that did in the fourth quarter?

No, I think the trends have been pretty uniform throughout the year. Worker's comp worsened as has been the case for the last couple of years and it worsened again in the fourth quarter. Our general liability coverages which includes such things as errors and omission, liability, et cetera are steadily -- steadily improved coverages which includes such things as errors and omission, liability, et cetera are steadily -- steadily improved last year and that continued in the fourth quarter. Our aviation business, you know, maintained a similar level of profitability. Ditto with our home home warranty business. That's a smaller line for us, but that did improve significantly from a combined ratio in 4Q. But again, that wouldn't have as much as a significant impact as let's say our trucking line. That continued to improve particularly in Canada as you may recall. We had difficulties with that in the third and fourth quarter of 2001 and 2002 second half it was almost the opposite, you know, the line began to show all -- or to reflect, I should say, the corrective measures we've been taking for about a year and a half on that. And our regular trucking business, you know, produced better and better results. So the trends by and large were, you know, all positive except as I say for the comp business.

And then your expectation is the level you gave us in terms of premium growth and as well as combined are considering the fact that you are going to be able to still put through rate increases and again what kind of level and what's your expectation of sort of the economy in general?

Well, for rate increases, I still think that, you know, on average, we're going to get, you know, mid teens. We along with everybody else, I think, have gotten again, some increases in our reinsurance costs and we have to have a way to, you know, pass those along. Although, as you know, renewals in this business start getting worked on, you know, late last year we started the fourth quarter of last year. We started, you know, working on our renewals for the first quarter of this year, so already, some of the stuff is in the bag. And that's the combination as I say of the hard market and the fact that we are still incurring increases in our reinsurance costs is what leads us to think that we're going to be able to get that kind of top line improvement.

Okay, great. Thanks very much.

Mm-hmm.

Our next question comes from Mike Deion with Sandler O'Neal.

Good afternoon, Al.

Hi, Michael.

Just another question on the work guaranteed line. As you saw the increase and loss in the second half of 2002, if you can assess the breakdown between the bulk and traditional book. Have you seen the primary on one verse versus the other?

No, as you know, bulk insurance is a relatively new piece of business for us, you know. For a long time until early this year -- or early 2002, late 2000 and early 2002, we did not write much bulk. So a lot of that bulk is relatively green for us so far. You know, we try to look at it in terms of what our competitors started booking in terms of loss ratios, et cetera. On that line when we first wrote it a number of years ago and so far we don't seem to detect any, you know, bad apples in that book. So the trends in the loss ratios that you see us reporting are basically the results of what's happening with the primary, the traditional primary business.

And as far as the percentage of the bulk, you know, last quarter you kind of laid out, it was somewhere in the 9% range, you mentioned that it slowed down a bit in the fourth quarter.

It slowed down a whole lot, and I'm trying to see if I can answer that question for you right now. Bulk new primary insurance written was diminuous in the fourth quarter. I can say that to you categorically. I don't have a percentage in front of me, but it was very low. As I say, you know, we've been very sensitive to pricing and quality in the fourth quarter for whatever reasons, we saw it move away from us and, you know, we just hunkered down and didn't write any, to speak of.

And I know one thing you said in the past, it might go as high as 12%. Based on what I'm hearing you say, it looks like it will be, you know, probably shy of that in '03?

Well, it looks that way right now.

Okay.

But you take it quarter by quarter. You know, the markets change. And some of these things are hard to predict. Just like, you know, we didn't think at the beginning of 2002 we would end up writing as much as we did in the second and third quarter in particular, but right now, we just don't see it happen is the best I can give you.

Thank you.

You're welcome.

Once again, ladies and gentlemen, if you have a question or comment, please press the numbers one followed by four on your key pad. Our next question comes are from John Hannen with Vertical Capital.

Al?

Hello, John.

Congratulations on another good quarter.

Okay.

Al, just one question, you know, people keep worrying about the housing bubble.

Yes.

But the average loan in your mortgage, it seems to me for most people is $135, $145,000 does that sound right?

It's even lower for us. It's in the 20s.

Oh it is?

Our average exposure is in the low 20s.

Oh, okay. I thought it might be a little higher. And you mentioned that, you know, interest rates. It seems like interest rates are a little bit of a catch 22. Very good for title, not so good for investment income.

Exactly.

At some point, we are going to get higher rates, I think.

I think so. It's the old story, John. You've been around a long time in this business, you can't have it both ways. It would be nice if you could get great underwriting and great investment income, but in our free markets, that's not going to happen.

Yeah, I mean in two years you are invested assets are up to 19.8%.

It's incredible.

And your investment income is what?

I don't remember these rates except when I first started in the business back in the '60s.

Yeah, we all remember those. Al, thanks again. And, you know, great quarter.

Okay, thank you.

Our next question comes from Chris Bonafed with Fox Bikelton

Hi. I'm actually new to the story.

Yeah, I understand.

I have a couple of questions regarding the mortgage insurance side.

Uh-huh.

Can you repeat, I think you mentioned it, what was the total dollar amount of the underinsurance written during the fourth quarter?

Okay, hold on. Let me go back to my notes here. I don't have it memorized. I think what I was talking about here is what new insurance in force. I gave you that number, right?

Yeah.

I gave you 73.2 and then I gave you 112.9, right?

Right.

And I don't see -- I know I looked at those numbers, but I don't have that number in front of me. I can't find it.

Okay.

I'll have to call you back. New insurance written.

And then can you give us a measure of what is the risk in force of, you know, or what percentage of the insurance in force is at risk, I guess?

That's a number I don't have, either.

I guess it's about a quarter but I'm just guessing.

I don't have that. Well, it varies as you know. And the bulk, also the type of bulk insurance that you write has some impact on that as well, right.

Right.

I don't have that information regrettably. I'm making notes to maybe provide in the future.

And I guess another thing related to that same business line is what is -- bulk is a percentage of the insurance of the in force book represents what?

Okay, wait a minute. Before I answer that, I did find my notes here on new insurance written and I can say that on a traditional insurance written in the year was up 20% to --

20%?

Yeah. And it was up 20% also for the fourth quarter. I don't believe I gave a number but for the year it was $30.8 billion.

Okay.

Okay? As to the percentage of bulk, I have to beg ignorance. I don't have that number in front of me, either. But it's not a significant number, again, for us.

Okay. Okay, thanks. That should do it. Thank you.

You're welcome.

Our next question comes as a follow-up from Nancy Binachi.

Al, I'm sorry to ask you this. But you said if I'm looking at primary insurance in force, what's that number?

Primary insurance in force, that's what we call traditional.

Right.

What I said was that the amount written was up 20% for both the fourth quarter --

okay.

As well as the year.

So up 20 from where you ended the year.

Right. Uh-huh.

Okay. And on the delinquencies, you indicated that the delinquency rate kicked up in the fourth quarter.

2.0 to 2.39.

As you are looking out, I do anticipate that to continue to accelerate or --

Well, right now, we're assuming, you know that it's going to continue to stay around that level.

Okay. And I guess just one sort of, you know, one main question, as you look at and we've talked about this at different points but if you look at the main divisions and you look at where they are today, what can be done to per se recognize more value in the sense of, you know, where the stock's trading today basically is t.'s at the lower end of the multiple range for the toughest performing sector? How do you get the credit for having a very good, strong property casualty piece as well as, you know, still very good numbers coming out of and am I entitled at this stage?

Well, I think you, and people such as yourselves such as yourself, Nancy that work with this thing all the time are in much better shape than I am to figure that out.

But I guess the reason you have the different sectors is you can benefit from the whole and --

right.

And with the kind of fault quality of the balance sheet as well as all of the ratings that you have in reserve redundancies where they are, at this stage, wouldn't the sense be that you should be able to recognize more value per se out of your stock price?

Yeah. The market has got to do that. I can't do that.

Does it make you rethink the ownership of the divisions that you have?

Absolutely not.

Okay. I wanted to touch base on that issue. Thank you.

Mm-hmm.

Our next question of the afternoon comes from Allen Danzig with Fox Pig.

Hi. I have a few questions about the general insurance line. First, with the reinsurance contracts, what percentage are up for renewal?

Well, all of our core treaties, which includes, you know, reinsurance for comp, algl, all that stuff comes up on January 1st, and then we have dribs and drabs for aviation and some specialty coverages that come up around April or may of the year. And then we've got our property come up in July.

Okay. Yeah.

The lion's share of the money, the reinsurance money is in the first of the year.

Okay. Could you give us a broad indication of how those renewals were? How the rates were going?

They were about the same as they were at 2000, by the end of 2001, beginning of 2002, there was very little change. I think we share the experience of most primary companies in that no matter what our experience was, we got rate increases just because. And that was the case and particularly with companies such as ourselves that stress reinsurance quality that if you want quality, you've got to pay up for it.

So that's the same rate increase?

Yes, sir.

Okay.

Well, I would say it's a little lower than it was in 2001, but still higher than we thought it would have been.

Okay. All right. Thank you very much.

You're welcome.

Our next question comes from Renny Skinto with Skinto Capital.

Good afternoon. A few questions for you. First, your insurance in-force and m.i. business was that up on a sequential basis from the third quarter?

Let's see. Just a second. Doesn't get any better these statistics here. It was sequentially better quarter to quarter, yes.

So that's definitely an indication of you guys taking market share.

Market share did go up, no question about it. I'm a little gun shy because the numbers are still raw in citing a percentage but we can definitely say our market share was going up fairly consistently quarter to quarter.

Would you say the main driver of market share gains was captive or bulk or

it was primarily in the traditional. Because we have not been a bulk writer to any significant degree until starting a little bit in the fourth quarter of 2001 and again in the first, second and to some degree third quarter of 2002 that obviously that grew significantly for us. You know, if you start from a small business.

Yes.

But most of the increase in the market share, I believe, was due on the traditional primary side of the business.

Okay. And then just in terms of the ROE of the general insurance business, back of the envelope I have you above double digits for the quarter. Is that correct?

Just give me a second here. That's -- you are close to double digits. Not quite there.

Okay. And just in terms of what your goal is in terms of ROE. for the general insurance?

Well, we have a goal for the entire cooperation, which is 12% to 14%.

Okay.

And because even though we know we're operating these things in different buckets because we as was given as the answer just now to Nancy, we do operate it as a, you know, mix of business type of approach. We do look at the composite picture as opposed to the individual groups.

Gotcha. Just in terms of the combined ratio, I thought I heard you say you expected the combined ratio to go between 90 and 96, is that correct?

96 and 98.

Oh, I'm sorry.

Uh-huh.

And then last question is on obviously you were return on equity for the entire firm, you know, given insurance of forced growth in the mi business isn't going too much, here is the stock buyback question/dividend question. It looks like your book value per share is around $26 obviously with $3 worth of earnings plus. We're talking about end of yearbook value next year at $29. Currently, your stock price is below that. In the past --

We think that right now we have great opportunities, particularly in the general insurance area to put our capital to work to the best advantage of the shareholders and so as a result, we have no particular interest to buy back our stock.

Or raise dividends?

Dividends will be reviewed as they are, you know, and the march meeting of our board of directors, we have a long history of having raised our dividends for more than 20 years, and hopefully we can continue that.

And then with regard to the general insurance growth, how might the Kemper transaction help you there?

Well, that business had -- has more than $100 million worth of premiums. What we don't know is how much of that we will be able to renew. As you know, you've got to look at that business on an account by account basis. They are typically large accounts. There's no assurance that we're going to write, you know, 50%, 70%, 90%. But obviously it's going to help us write more in an area of the specialty commercial lines insurance market that we're very much interested in growing. And we have been growing it at a much quicker clip as you might expect in both 2002 and 2001. So that's just going to, let's say, help us accelerate that process.

Exactly. Just in terms of general versus the other divisions, in the past, I thought you wanted balance say 50% of earnings come from general.

Exactly.

That would require a decent growth in that division.

That's right. Yep, yep. We did say, we did say a couple of years ago that we wanted to increase our volume by the end of 2003 by 50% from our 1999, 2000 year base. And we just about have done that. A year ahead? A year ahead of schedule, that's right.

With 50% increases in pricing and better penetration hopefully from Kemper and other things, what kind of premium growth are you looking at, another 20% plus per year?

I indicated that our current objective for this year is probably going to be in the 15% to 20% earned premium increase.

Okay.

Uh-huh.

Thank you very much. Great quarter.

You're welcome. Uh-huh.

Our next question comes from Allen Pornier with Penning Capital Management.

Good afternoon.

Yes, sir.

Looking, Al, into a rising interest rate environment which I assume we do get at some point here, can you help me understand what the put and takes would be between the title business and the m.i. business. What I'm trying to understand is if we're sort of earning at a level today that it's considerably above what might be considered normal?

I'm sorry, I did not catch a couple of words you said. Put and takes?

Yeah, the offsets in title and m.i. in a rising rate environment. In other words, I think the market may be assuming that a rising rate environment is going to, you know, significantly impair earnings in those businesses.

Uh-huh. Okay. I think I understand the question. Basically, what we believe, and I think it's supported by the facts, is that if interest rates mortgage rates should increase, that's not necessarily a good thing for the title insurance business because as a minimum it reduces the number and amount of refinance activity that's rolling through the system. And as we've indicated, that's been a big -- that's provided a big upward push to our top line and certainly our bottom line.

Right.

On the other hand, refinance activities is basically a bad thing for the mortgage guaranty business and that, you know, you end up chasing your tail. You write a lot more business but you lose a lot more business when mortgages get refinanced particularly in the rising housing market from a price standpoint. Some of the loans that were previously were required mortgage guaranty insurance may no longer need it and therefore you need it end to permanently lose some business on an industry basis. So from those standpoints, it is a bad thing. On the other hand, it takes both better, greater interest rates to preclude the level of persistency that we've had as well as a stronger employment to potentially reduce the default rates to improve your mortgage guaranty business. Those are two key variables there.

So when you net these factors out --

I think you have almost a natural offset. Almost a natural offset. It's not a perfect one because the size of the two businesses is different.

So you would argue that the business -- those businesses combined aren't overearning by a material amount in this interest rate environment?

That's right.

Great. Thank you very much.

You're welcome.

Our next question comes from Jeffrey Dunn with KBW.

Hey, Al.

Hi.

Could you talk a little bit about the severity trends in the site of m.i. and you pri your average loss per loan versus a year ago comp?

I don't have that number, but I can say categorically that throughout 2002, the level of severity was coming down.

Okay. So that trend was still true in the fourth quarter?

Yes, sir. Absolutely.

As far as cure rates go, is that improving or are we seeing a term maybe in loss mitigation ability?

Loss mitigation has been a real tough thing to predict. Our loss ratio has been kept under wraps to a large degree by our success in mitigation. Going forward, we're assuming for what it's worth a similar level in 2003 as we've experienced in 2002.

Okay. And just a clarification, I think you just gave an idea of premium growth in the g.i. segment. I missed the number.

In the g.i., I believe I said 15% to 20% earned premium growth rate for 2003 should be in the cards.

Great. Thanks, Al.

Uh-huh.

Once again, ladies and gentlemen, if you do have a question or comment, please press the numbers one followed by four on your key pad. Our next question comes as a follow-up from Nancy Binacci.

Did you indicate how much of the increases in the pipeline for title for next year versus the end of '02?

No, what I said I believe, Nancy, was that the level of open orders that we booked in the fourth quarter of 2002 was about on par with what we did in 2001, which therefore indicates that our experience in one Q200 3 should be pretty good.

And then slowing down the second half of the year?

That's our assumption right now that the title business should slow down. Now, by the same token, you have to remind you and myself that, you know, that's what we thought would happen in 2002, and we were proven wrong.

I remember that. And also just wanted to ask one last question on the investment portfolio. I certainly see here you have about 8% in equities. What's the yield on the fixed income portfolio? What have you been doing with new money and what was the pretext here?

I don't have that number, Nancy. We'll have to fish it out.

Okay, sounds great. Thank you.

It appears we have no further audio questions at this time.

Well, all right. Again, we certainly appreciate your taking the time and for giving us your attention. Look forward to visiting with you all next quarter.

Thank you, sir. Ladies and gentlemen, we thank you for your participation in today's audio teleconference. You may disconnect your lines at this time and have a pleasant evening.