Old Republic International Corp (ORI) 2003 Q1 法說會逐字稿

Please stand by for realtime captions. The Old Republic International conference call will begin shortly.

Welcome, ladies and gentlemen, to the Old Republic International first quarter 2003 earnings conference call. At this time, all participants have been place owed a listen-only mode and the floor will be opened for questions and comments following the presentation. It is my pleasure to turn the floor over to your host, Leslie Loyet, with FRB Webber.

Ma'am, the floor is yours.

Thank you. Thank you for joining us today for joining us today for Old Republic's conference call.

This morning we distributed a copy of the press release and hopefully you have had a chance to review the results. If there is anyone on-line who didn't receive a copy, you may access it at Old Republic's website at www.oldrepublic.com. Or you may call samir patel at 312-640-6771. And he well send a copy immediately.

Before we begin, be advised this call may involve forward looking statements as discussed on at 3 page of the press release, risks associated can be found in the company's latest SEC filings. Additionally we want to let people know the information statements made during the call are made as of the date of this call. Listeners to replay must understand the passage of time by itself will diminish the quality of the statement, also the content of the call is property of the company and any replay or transmission may only be done with the consent of Old Republic International.

On the line with us from Old Republic is Al C. Zucaro, Chairman and Chief Executive Officer. At this time we'll start with brief remarks and open it up for Q and A.

Al, if you are set.

I am, as usual.

Thank you.

Thank you.

And thanks to everyone for your continued interest in Old Republic's business.

As the press release showed this morning we had the best ever quarter for our business on the consolidated basis. And I'm sure all of you have received the press release and saw that we have appended some additional statistics to the release, and as you can readily see from there, our general insurance business was the biggest contributor to the growth and earnings. It was up by 48% or so. And this was followed by title insurance which again grew at a significant pace of 28% or so.

And then our largest mortgage guarantee business which was earnings are growing single digit rates, but still represent the strongest and biggest contributor to our bottom line. Net income grew at a slower rate and as we tried to point out in the press release, that's because we took some investment losses in this past quarter as opposed to the gains we posted in the first quarter of 2002.

And as you know, the timing of realized gain or loss recognition is affected by a number of discretionary as well as market timing factors which can bounce around certainly on a quarter to quarter basis. And this can play havok with comparisons. That's why we, along with most other publicly held insurance organizations break down our earnings between the operating side and the realized gain and loss portion.

Looking as we usually do, looking at each of our segments, prompting liability business for old republic posted some very good underwriting results, as you can see, the composite ratio was around 94.8% in this past quarter. And that's quite a bit lower than the 96 to 98% range that we have initially anticipated for this year in its totality. I might say this better than expected underwriting performance was largely due to lower claim ratio. Which itself resulted from reduced lost costs from most of our major coverages.

I might note that even our worker's compensation line, which has been a problem for us, it has been a problem industry wide fort last several years now, and I don't think it is out of the woods now, but nonetheless, that line that accounts for some 18 to 20% of our earned premium base also posted a lower than expected claim ratio in this first quarter of the year. Our truck insurance business is very much and very solidly in the black this past quarter, as it has been for several quarters running now. And ditto for the various specialty coverage that's have been growing the fastest for Old Republic such as General Aviation and Executive Indemnity which is our eno, dno business. Credit indemnity and home and auto warranty. All these lines, as I say, have been growing the fastest in the past three years or so and are producing very good underruning results. And are contributing to the very positive comparisons that we're showing on the year over year basis.

As anyone who follows the prompting liability insurance business knows, individual quarterly results are really indicative of full year or longer term cycle results because the business can be pretty quirky. And it is more apt surprise on the downside rather than positively. And this is particularly so because short-term blips and claims incidents and severity patterns et cetera.

But having said that, I think there is obvious merit to looking at trends of quarterly and annual composite ratios because the patterns they show either confirm or disasern, as the case may be, the expectations that we have and which in turn are driven by pricing and other structural changes that's affect the underwriting profitability of the business. As far as Old Republic's business is concerned, this last quarter its underwriting ratio continued to confirm the positive trends we have been expecting for quite awhile now. As you may recall, those of you who follow our company, the highest ratio we had in the decade was in 1999 when we posted 112% of their about composite ratio and then in 2000 the ratio improved to 106, it went to 102 in 2001 and it continued downward to 100% or there abouts.

In the first quarter of 2002, and gradually was driven down to 98, 96.8%, I should say, in the fourth quarter of last year. Here we are in the first quarter and we post a 94.8%. So, all of that to say that we continue to feel comfortable in expecting solid underwriting profitability for this part of our business well into 2004 as a minimum. In our judgment most of the business we write is still being produced, I would say, in the realm of what one might categorize as a seller's market. Of course that means there is still an acceptable level of overall price elasticity that permits us to obtain both additional rate increases where they are needed as well as remaining competitive from the standpoints of both account retention as well as new business acquisition.

And I would say that based on our -- on our evaluation of trends we see and the independent financial ratings that are being assigned and which as you know have been generally on the down trend based on the very bad results that have impacted the reinsurance industry which is causing to some degree a capacity issue for reinsurance buyers such as ourselves. Based on the fact that we think that there is greater balance sheet leverage, industry wide and I think there is still a real possibility that we are going see that there is additional further exposure to reserve increases that will affect a large segment of the commercial lines' business and you add to that the fact that returns on invested assets are still relatively very low and there is no indication that there is going to be any turn around in that area anytime soon, that we think that the combination of all these factors is going to continue to put upward pressure or at least stabilize prices at a much higher -- at the currently higher level and that this hard market should last through 2004 at the very least. So we think we've got some industry wide issues here which will continue to put us at an advantage in terms of both retaining business as well as securing additional business and general insurance. On the matter of investment income, as I say that feature of our general insurance business has continued to exhibit the same malays, if you will, that its had for five years running now. And even though our operating cash flows are growing and our additive to our invested asset base, the downward bias of yields is such as to nullify pretty much the benefits that one my expect from the greater base of income producing assets.

Nonetheless, be that as it may, we continue to be reasonably bullish with respect to general insurance. We're still very comfortable with the quality of the reserves we've got. They still post some pretty decent redundancys in the 2-4% area, and that's the way we like to see it. And therefore we don't expect them to lodge any significant claim against future earnings. As I've said, pricing is likely to remain at very acceptable levels in the areas in which we underwrite and the quality of our asset base is such that it should not as well make significant claims against future earnings.

Our mortgage garantee business continues to grow at a slower pace as you can see from the stats we published this morning. Had this been the case for the last year and a half or so, but nonetheless it remains solidly profitable, and as I have said before it does provide the strongest anchor to our consolidated earnings.

Even though we have been faced with much lower persistense rates, as have the rest of the industry, our net insurance in force has grown by almost 15% during the last 12 months that ended in March of this year. We think that this reflects both some market share pick up as well as a relatively greater involvement on our part with bulk or pool-type business. As you see in the stats we furnished, new insurance written was up 39% quarter over quarter. And I my point out that the -- just the traditional primary portion of new insurance written was up 26%. So the higher, overall, insurance written growth was due to our greater participation, as I say, in the bulk or pool-type of business.

But nonetheless, we are very happy with the kind of growth we are experiencing on our traditional run of the mill mi business. Claim costs, in this segment, whether we measure them on the paid or incured basis and as you can see we published both sets of numbers this morning, continue to be very acceptable. We're experiencing favorable severity trends and that's been our experience for at least the last 18 months or so.

And I might add that our efforts in mitigating claims also continued to payoff very nicely in helping to reduce costs below our original estimates. And while our incured claims ratio was up around 15.2% versus 12.5% in the same quarter of 2002 and 14.1% for all of 2002 the rise in this latest quarter was offset by a drop in the expense ratio. So the overall combined ratio remained basically stable at about 40 1/2% in this latest quarter. In light as we see the current market conditions, we're happy with our mi results and the prospects of that particular segment. We continue to be very opportunistic in the area that is generally defined as bulk business, so there is no clear pattern to our production trends in that regard. With respect to our core primary mi business, we've got good momentum, I think, to grow market share to some degree, or at very least keep it at the higher percentage level of 10 1/2 or so that we have attained in the past 18 months or so. So, things look good for a nice steady business in mortgage guarantee insurance for Old Republic in the foreseeable future.

Now, turning to the third major leg of our business, namely our title business, it continued in a very strong mode in this year's first quarter. The data that is appended to the press release shows very clearly, I think that the greater earnings contribution of this segment is being propelled by 30% plus top line growth. It was somewhat lower operating expense growth and a claims ratio here while it has remained somewhat on an inclining curve, still remains very contained within our currently expected range of 5 1/2, 6 1/2% or there about range for the foreseeable future. We have -- in this segment we have experienced moderately higher investment income growth because we have had a portionatly greater apresion of the invested asset base year in recent quarter, but none the less the yields we're getting the assets fundamentally the same levels as we have on the rest of the business since the entire portfolio. And it is managed similarly for all our segments.

As you can see from the title order statistics we have provided the trend in open orders is very positive and this as well at least for the second quarter. When you consider the statistics we publish are based -- are principaly those of our direct business, I should say almost exclusively of those of our direct business. They do not include the 55% or so of the business that we get from independent agents and there is an inherent leg to that business, so what I'm saying is that the director is a good advance indicator, if you will, of where the next couple quarters are likely to be from a production standpoint and the types of increases we're seeing are making us very optimistic about our prospects for the next couple quarters as a minimum, as I say.

In total, our business produced consolidated operating cash flow of almost $200 million in the first quarter. I'm pretty sure that that's -- that's a new record for Old Republic. It reflects at this level it reflects a 31% improvement over the positive operating cash flow we experienced in the first quarter of 2002. I might note that for all of last year, the increase was about 27% or so. If we leave aside the positive impact of the investment evaluation changes we mentioned in the press release of the consolidated asset base has grown by a little more than 10% in the fiscal 12 months that ended on March 31st of this year.

Our fixed maturity portfolio has been kept at a relatively low duration so that if and when, as I'm sure one of these days we're about to see a -- an up take in yields, we should be in a great position to take full advantage of the upside potential for that part of our business. If you look at post-tax and pre-tax earnings, you will see there has been -- you may detect a small increase in our tax rate to around 32 1/4% and that's up from about 31.7 or so percent for all of last year. And this just reflects the greater underwriting income content of our pretax line when -- and as you know, underwriting income is taxed at the full corporate rate of 35% and that's what is driving the overall rate in as much as there has been very little change in the mix of our investment income contribution from taxable versus tax sheltered investments such as municipal and state issues.

As a final note, as I usually say at the conclusion of these conference calls, we have nothing to report relative to the couple of class action and similar issues that have been affecting our title and mortgage guarantee segments. As you may recall, we did post a significant reserve in the fourth quarter of last year with regard to our mortgage -- to the mortgage guarantee portion of these legal issues. And where we are today is that we are very comfortable with the reserve levels we have posted both in our title and in our mortgage guarantee business. So that I don't think will have any major adverse surprise when these things finally settle.

We thought at one time we my be able to resolve our title situation by springtime this year, but given the extent to which the California court system is clogged, it looks like this thing is really going to go into next year before it is all said and done. Mortgage insurance, I think we are close to resolving, and as I say, we should be able to do so in the context of the reserves we have posted.

That's about the extent of my comments. And as we usually do, I guess we'll open it up to any questions you may have.

Thank you.

The floor is now open for questions. If you do have a question or a comment, you could press 1 followed by 4 on your touch tone phone at this time. If at any point your question has been answered you may remove yourself from the q by pressing the pound key. Once again, ladies and gentlemen, that's 1 followed by 4 on your touch tone phone at this time.

Our first question comes from Greg Peters from Raymond James.

Good afternoon, Al.

Hi, Greg.

Congratulations on a real fine quarter.

Well, good.

First off, let me applaud your decision to provide us with increase disclosure. We appreciate it. One of the things I noticed -- I appreciate the detail on the mortgage guarantee group. One of the things that is missing from some degree from the general insurance is any discussion on the risk management business and some statistics.

Yeah.

And you didn't really talk about it in detail in your comments. I'm wonder figure you could take this opportunity to provide us an update there.

Well, that's going very well, as you may recall, Greg, that business during the 1990s gradually moved to around 21, 22% of our total business at one time it had been in the 80s. It had been around 35 or so percent. And we're -- because of the greater opportunities we have now to produce business including the opportunity we got earlier this year to under write -- newly unde rwrite a book of business that was previously under written by a competitor that decided to exit the market. The combination of, I would say, a flight to quality.

That is very important now days in this business as well as better marketing stance and a better pricing situation that we're faced with, that all of those factors are leading us to increase that business very nicely and currently it has -- I would say as we speak it currently accounts for some 27% of our total direct volume.

Should we -- should we be looking at that or listen to you talk about that in terms of new accounts added? If so, do you have an update with respect to new accounts added during the first quarter?

Well, we have quite a number of new accounts. But as you know the account count does not necessarily tell you what to expect on the volume size since an awful lot depends on the size of accounts. Over the years, and this continues as we speak, we have tendered to go after mid-size fortune 2000 companies as opposed to the large ones. Not that we don't look at the large ones and not that we don't do quite a number of them, but most of the accounts we write, I would say are in that fortune, you know, between 500 and 1500 category.

Fair enough. I wanted to switch gears briefly --

I might just say to you, Greg, that an indicator of our success in that business is usually , reflects itself in the combined ratio, since as you know that business is marked by a high degree of service as opposed to risk taking. And therefore when you see our combined ratio drop as it has dropped steadily, to a large degree or to a significant degree I should say, that is affected by the affect of that business of the overall results of the company.

Right. One of the -- I thought you were picking up some of that business in the other income line, yet that was down. So I'm not sure --

No.

What's going through that line?

The other income line represents commissions and service fee that's we get on both related and non-related business through oleon agent we have.

Fair enough.

One last topic area, I continue to believe your company is strongly capitalized if not over capitalized. You talked about some excellent cash flow statistics, not only for last year but the first quarter. Could you update us with respect to the general insurance reserve position.

I think in the past we have talked about the casualty reserves to surplus ratios being a measure of your watch. Where are we within that acceptable range? And could you provide color there?

On the net reserves which is after reinsurance, our guidelines allow us to go up to 175% reserves to capital and surplus. And that's all in the statutory basis which as you know is the only way we can run our business. We are currently at about 127, 128% last time I looked. There is still quite a bit of room for growth there.

That's come down though from probably the 2001 level, hasn't it?

No, it had -- well, slightly, I would say. It has been pretty flat the last two or three years, around that level. It came down to maybe 115 at its lowest, if I recall. I don't have the figures in front of me. Let me just take a look at something here. Bear with me a second.

Well I'd be curious where it was when you were buying back all that stock as well, which would put it in the 98, 99 time frame I think were you aggressive at buying stock back.

Yeah. Here we go. Yeah, I would say -- let's say in 1999 -- 1999-2000, 2001 it was in that range of between 115 and 130 for those years. And now as I say it is probably around 125 as we speak. So we've got room.

Fair enough. Congratulationss on the fine quarter. I will let others ask questions.

All right.

Thank you Mr. Peters. Our next question of the afternoon cons from Nancy Binacci with McDonald investments.

Good afternoon. Also congratulationss on a great quarter. Good start to the year. A couple questions on the general insurance side.

A great low combined ratio, you indicated reserve redundancy at about 2-3%.. Was there adverse development to speak of in the quarter at all? And specifically, I think last conference call we talked about comp which had some issues and if you look at the k, we had adverse developments in previous accident years. Can you update us with where you are with that?

There are always adverse development. When I speak in terms of having a reserve redundancy or reasonably expected of 2-4%, I'm talking about the overall book of business.

Individual lines or individual pieces of business themselves, you know, may produce adverse results, and other pieces produce positive results and the mix of them all produces an over all positive result. That's the state in which we're in still in the first quarter and we have no expectations that that's going to change.

I guess what I mean, and I certainly understand how you answered to that before, but just -- just because of some things we heard from other companies, are you more concerned about your conflict than you were before? Is there anything unusual that occured in this quarter or we should, you know, anticipate worsening as we look through the year?

Well as I said, I believe in my brief comments, we were surprised by the worker's comp line this past quarter. We thought it looked a lot better than we expected it to look. I think that's just a quirk, you know, this quarter. Longer term, we don't think the line gets fixed anytime soon. You know, as I have said before, we think it would be a 2 to 3-year project which means 2005, 2006 before we see more positive results there.

The pools, you know the involuntary market assessments are a concern, a continuing concern, and those have continued to develop or produce adverse, meaning negative underwriting results. But, you have to remember again with respect to our book of business, a large portion of the so-called risk management business is in the worker's comp line which helps us to some degree, obviously, since a great part of the risk there is born by assurance through their participation or their risk takes in their own business. And so to some degree I think probably that's one of the reasons, you know, given the influx of that worker's comp business by virtue of the growth where -- we're experiencing in the risk management area is what helped this particular quarter. And longer term I think it will continue to help. But is it going to be a very profitable line for us anytime soon? I don't think so.

Fair enough. And just if you look at other sort of pluses minuses in the quarter to get to the 94 8, you just indicated the count was a little better, you think it was more of a quirk, anything else in that -- in the quarter that seemed to be kind of one time? You indicated again I think you reiterated the 96 to 98 number for the year. Obviously you don't have weather issues.

You know, I don't mean to evade an answer, but I mean, you are familiar enough with our book of business, Nancy, to know that we've got so many moving parts and it is tough to say, well this part is the one that caused the results to be so good and that part is the one that undermind them et cetera, et cetera. That's why we can only speak in generalities and look at basic trends of our overall business and the basic trends of the big pieces of our business, you know, the trucking area, for example, which accounts for a big chunk. 40% or so of our volume. The risk management portion which as I said before, you know, accounts for some 27-28% of our direct volume. Those are trending very positively. Some of the lesser lines, the e and o and the d and o. The aviation business, the home and auto warranty books business, they are all performing well. And while we've got individual accounts that are going sour and you might say, well, that's a unique situation, overall I can't say that we have anything we can point to. We always look at our receivables whether they be from agents or from reinsurers and we attempt to react to those -- to our evaluation of the collectability of that stuff and it goes on quarter after quarter after quarter and we don't see anything that takes place in that area as being particularly unique.

Okay. And just to switch over to a couple questions on the mortgage guarantee side which certainly looked good, per sis sten see rates down the lowest levels we have seen for a long time.

Exactly.

But still, the underling business looking strong and just wanted to see if you could comment more on the law link wen see rate which, higher than a year ago, but still below what we thought the fourth quarter. What are you thinking as we look out here?

Well, you know the deliquency rate, we are talking about direct primary business which is the most indicative for us still so far. That's been inching up pretty steadily. If I look at the stats I have here, it was what? A 260, I think for 2001, 267 in the fourth quarter of 2001. Then it went to 293 to 339 in the 4 q and then of last year, and now here we are slightly below that at 330. I think we're -- judging from the statistics that are published by other mi companies, we seem to be tracking pretty much what they are experiencing. And so long as the employment picture stays where it is and the economy just rolls around the way it is, we are bond to have higher delinquency rates. We don't see the making of a disaster. On top of that, even though our delinqency rates have been going up, we've been favored with lower than expected severity on claims and certainly our mitigation efforts have been very helpful and have served to offset the basically slight increase we are experiencing here.

Great. Thanks very much.

Thanks. The next question comes from Jeffrey Dunn.

Hi, Al.

Hello, Jeff.

I want to follow-up on one of Nancy's questions. On the worker's comp, can you, for a rough qauntification, around for how much benefit the unusual favorable development contributed this quarter to the combined ratio?

I don't think there was any. I think it was just a matter of this quarter's losses being -- you know, for the aggregate of our book of business not producing as much, you know, frequency or severity -- and/or severity as we my have otherwise expected. There is nothing thats happened to our way of handling claims, nothing that happened to our payment patterns. As I say, the best way I can describe it is just, you know, quirky.

Okay. And then, on the mi side, the expense ratio was somewhat surprising and it seemed a little counter intuitive to the premium growth and volumes of a quarter. Was there anything special as far as expense controls or increased electronic did interface or anything like that to affect that?

I hope you are not comparing the expense ratio to the fourth quarter of last year for mi which, as you may recall --

No I am looking at third and fourth quarter.

The overall for last year was, what, 32.3, and if you exclude, you know, the business -- the additional expenses we booked we were in the 27% or so area as I recall. No, I would say that the fact that we are -- that we have been writing more of what is generally the categorized as pool and/or bulk business, that that business as you know does not have the same type of production costs, the same amount of production costs as are traditional primary business. And therefore, for example, we don't have to spend much money with respect to bulk business in so far as contract underwriting or things like that. So as a result, the expense ratio tends to benefit by virtue of the inclusion of a greater amount of that business.

Okay.

There was nothing, again, unusual in terms of what we've done in managing the business. I mean, we're very cost conscious. We always battle that part of our business, but again, nothing unusual as I say.

Okay. And last question, there is a noticeable difference in the growth between your risk force and insurance force, and I think the added disclosure is great on the mi stuff. Outside the lower ltv trend we see in a refi wave, is anything else affecting that as far as mix of business, bulk business?

The pool of business, let's say is lower, lost content because you have basically stop loss feature that's are involved with that business. And as a result, even though your in force may grow, it did in our case, 15% year over year, when you look at your net risk in force it is up by less than 4%. I think it is all due to the content of that inforce being affected by some of this pool stuff which has a lower risk and lost content.

Great. Thank you very much.

Yes.

Our next question comes from Steven Peterson.

Good afternoon.

Hi, how are you?

Good. Very good. On the same sort of theme and we'll mind this a little -- we'll mine this a little further, your competitor's appetite fort bulk and pool transactions seems to grow or perceived unabated. I'm wonder figure you could provide us general color in terms of the -- your competitors' appetites, what you are seeing in the market place and, you know, obviously it does bounce around from quarter to quarter, but --

I think that is the best answer I can give. You know, and say that we are as we have from the very beginning when the -- particularly with respect to the bulk business when it started to emerge as a new avenue for mi companies that we have tried to be very opportunistic. We think we have been on the conservative side, in terms of pricing the product.

You know, we have taken our time looking at all -- a well the of statistics we have and the one quarter will be different from the rest. All I can tell you is that we believe we are a player. We get to see what everybody else is seeing and obviously companies have got different perceptions at any particular point in time as to what makes sense and what doesn't make sense.

So pricing on the majority of deals is still not quite to your likeing.

That's right. I mean, we're doing more today than we were 18 months ago, say. Okay? But we are doing a lot less as you can see from the stats than our competitors are looking at and we think that because we want to insulate our loss ratio down the road as much as we possibly can.

Okay. Terrific. And switching maybe to the pnc side, you touched on your -- in your formal comments on the -- on your outlook in terms of reinsurance. I'm wondering if you could maybe give us some additional color on that and whether or not you think at some point that the lack of reinsurance or reinsurance that you are comfortable with may impede growth in the future.

Well, that is a very big issue for us. The quality of the reinsurance itself. I don't think I need to tell you just by looking at the rating trends applicable to reinsurers that it is pretty much of a disaster out there. You have majors that I still can't believe I have taken some serious ratings down grades.

What that is forcing us to do is to envision as well as activate a greater retention of risk and we feel comfortable in doing that. We feel more comfortable -- let me put it this way: We feel more comfortable today in the general pricing climate in which we are to retain risk as opposed to parting with it and parting with it to -- in reinsurance markets we don't feel comfortable with. In terms of our ability to write business, you know, the run of the mill business, the reinsurance markets are not an issue. With respect to the larger count businesses, the risk management business, that is more of an issue. There we are having to be extra careful as to whom we deal with and how much we place with each reinsurer.

Okay. All right. Terrific. Thank you very much.

Thank you, Mr. Peterson. Our next question of the afternoon comes from John Hannen. Good afternoon how are you?

Great, thank you. Great quarter again.

Thank you.

Al, the mortgage insurance business, you know, I continue to think, people see the headlines that there is a housing bubble and there is confusion in mortgage insurance and who buys it, it is the first time buyer who buy itself fairly inexpensive house. What is the book of business now?

The average loan?

Yeah. I think if people knew what it was, it is not causing a bubble.

Yeah, it is still, for us, still below 150,000 dollars, not that we don't write a few jumbos here and, there but the bulk of our business in our mi business is in that area. So, -- and from the bubble standpoint, my goodness, I don't think we're about to see any significant price decrease in the real estate area. At least not on the national scale. You may have pockets maybe San Francisco area or what have you, but certainly not in the major parts of the markets in which -- the other major parts of the market in which we play.

I certainly agree.

Just one other question. You mentioned that trucking did well and it seems to me in the past that the first quarter sometimes you can be affected by weather.

Right. Exactly.

That says well for the rest of the year.

Banner quarter. And we also have, as you may recall, John, a small book of pruk business in Canada.

Yeah.

And even that performed well in the first quarter. So we are pinching ourselves.

Okay.

The first quarter there was something unique about it that in most of our business the number of claims in particular just dropped. We just did not have it. It is true whether you are talking home warranty, automobile extended warranty, the trucking, most of our comp, as I said before, it was a unique quarter from that standpoint. That's why I say, the quarter doesn't make a year and that's why I caution everyone by suggesting that we still feel comfortable with a combined ratio in the 96 to 98% area for the year in its entirety.

And comp line growth, you talked about --

I think we're still in the 15 to 18% range or there abouts.

Well, 15 to 18 and a 96 and buying produces nice result.

I think so.

All right, Al, thanks very much.

Okay.

Our next question comes from Leslie Goldstein with Engels and Snyder.

Hi, Al.

Hello, Leslie.

Hello.

I usually see you.

I'm on a diet. I'd like to hear a bit more discussion on your -- on the worker's comp business which you -- you seem to be saying that you are having a lucky time with trucking and with worker's comp --

well, worker's comp in this quarter in particular, Leslie, I am not suggesting that we expect worker's comp to get well or to be good for the rest of the year or for the foreseeable future as a matter of fact. Whereas trucking I think we've got a longer time frame of good times that we expect.

Well, this trucking hurt you severely.

It did --

not long ago.

Right, 1999 it fell out of bed. July of 1999.

What's changed to make you feel more comfortable?

What's changed is that we are getting much better rates.

Absolutely.

The rate increases, I don't think that's necessarily unique to Old Republic from 2000 to date is probably, you know, 45, 50% in some parts of the business. And that's been very helpful in turning it around. It was necessary. Absent on top of that we have had less competition in that business. You know, so many companies got hurt. We weren't alone. And it's been very helpful. Will it continue? Probably not. There is going to come a point in time when the market starts getting crazy again and that's when, you know, we have to make sure we stay as disciplined as we possibly can.

Okay, now, general aviation and executive indemnity are new lines of business for you?

No. No.

No?

General aviation -- both lines we have been in there since the mid 80s. I think what's happening here which is the reason why it may catch your attention is that those lines had been, you know, pretty good for us in the 1980s, late 1980s, for example, our executive protection or indemnity business had grown to about a 50, 60 million-dollar gross by the early 1990s. And as the market softened dramatically in that area, we dropped down to as low as, if I recall correctly, to 18 gross. Which on a net basis after reinsurance meant nothing. Well on a direct basis, that business is going to be over a hundred million dollars for us this year. And that going from 18-20 million gross to 100 million dollars plus just in three years time.

Why? You know, the market is better, pricing is better, there is less competition, less foolish companies out there. As you know, you read the papers. You have seen what's happened in this area with the Enrons and the world coms and the et cetera of the world that have created significant --

it is dangerous.

And but we think we got the wind at our back now. I have to say to you that, you know, Old Republic is not a company that retains big lines in those businesses. I mean, our biggest line in the offices and director's area net retain might be 2 1/2 million or there abouts. Whereas some of the other players, you know, have retained much larger -- I've had much larger retentions. And of course when losses hit, you know, and you have retained that much, it hurts a lot.

Okay. Well, I hope we're lucky on this too.

Yeah, I hope so too. I think we are.

Thank you.

Thank you Mr. Gold Stein. Our next question comes from Michael Deion.

Hello.

Hello.

No one touch owed title, so I guess I will hit that one. Given what's going on in the last few days with the rating type product and some of your title competetors indicating that they are looking to under write that product once it is approved and speaking specifically about California, is there any plan you have to delve into that area if they are successful in geting that approved?

We are in a position and to some degree we are providing that product to customers already. As we have always said, Mike, we don't really care what the regulations are because Old Republic is uniquely positioned. You know, if it becomes a title product, we're in the title business. If it is an mi product, we are in the mi business. If it is a pnc product, we are in the pnc business. We have all the flexability in the world to be able to offer that product and remain very competitive with any mi or title companies that offer it.

So --

by the way, I don't know that it's a slam dunk deal. I don't believe -- I think the commissioner in California, if I remember reading correctly, has taken the issue under advisement, you know, unless something has happened in the last couple days.

You are correct on that. And being uniquely positioned as you are, that's a plus. But let's say it were to go into affect. How would that affect your margins and/or top line as it pertains to title?

I think we'll be in great shape. As I say, we offer the product currently through our title operation and we think we make money at it, at prices that are comparable to what we understand radian was attempting to sell.

Okay. Great. Thank you.

You're welcome.

Our next question comes from Renee Skinto with Skinto capital.

Hi. One quick question your roe targets, obviously the first quarter performance was good. And if we annualize, I get something north of 13% and I was wonder if you could just remind us in terms of what your total roe targets are.

13 to 15.

I understand. And I'm wondering --

it has not changed.

Even though it appears the trends in gi are very favorable?

Yeah. Uh-huh. Well, 13 to 15% is a big range and currently, as you see on an annual basis, we are on the low side and I think we can improve on that.

What would you think in terms of your reo targets and a higher interest rate environment?

I think we go over 15%.

Okay.

However, can you bank on it? Well, given the history of our industry, you know, we don't seem to be able to get both or keep both underwriting profitability as well as investment income, right? It seems that we can't stand prosperity, as they say.

I understand. Thank you very much.

Yes, sir.

Once again, ladies and gentlemen, is a reminder to pose a question or comment, please press the numbers one followed by 4 on your key pad. Our next question of the afternoon comes from Ira Zuckerman.

Al, between the commentary and the questions, you have pretty much covered everything I needed. Another good job --

well, just to hear from you.

Just keep up the good work.

Thank you. It is nice of to you say that.

Our next question comes as a follow-up from Nancy Binacci with McDonald investments.

Al, I'm sorry if you went over there this, in terms of new money coming in, where the investments are going and where you are --.

Most of it --

where your duration is right now.

Most of it is in a fixed mature securities, Nancy. We are not investing much more in the stock market. As a matter of fact, if anything, we have stabilized that. We have focused primarily on the -- on stocks that are dividend paying, that produce a reasonably good yield. As we said in the press release, we are currently around 7% of our portfolio in equitys. And it will move a little lower as cash flow is aditive to our invested acid base. As we direct all of it is fixed maturitys. In terms of durations we are around 3 1/2.

3 1/2, great.

Uh-huh.

Great.

Thank you very much.

Once again to pose a question or comment, press the 1 followed by a 4 on your key pad. Our next question from Allen Danzig.

Hi. First I want to thank you for the improved disclosures there.

Good.

My first question relates to reinsurance. You express concerns just in general about how ratings for most reinsurance for many reinsurers have declined. I was curious with speculation is that reinsurance recoverables and the payments were slowing down. I was wonder if you have experienced any of this within your reinsurance recoverables?

That has been a steady on going problem for us. And I would say probably the rest of the industry that had reinsurance recoverables from the smaller players whether they are in the large market or elsewhere in this country. You know, I think Old Republic is pretty much addressed that issue over the years by, you know, reacting to nonpayment to slow down by setting up what we consider to be adequate reserves against that. I don't think today we have a major, you know, recoverable issue to deal with. I think we have our arms around it.

However, as you know, the number of viable reinsurers is not increasing significantly, and that to me is the biggest issue, you know, capacity, may become a real problem. Particularly since fewer and fewer of the primary companies are participating in the reinsurance market today as assuming reinsurers. And that's eliminating quite a bit of capacity. I think slow pay, you know, what typically happens with a lot of these reinsurers that go out of business and go into a run off situation for lack of a better term, you know, there is an incentive for whoever runs the -- whoever is in charge of the run off to delay or reduce claim payments by seeking commutations and what have you. And when you look at the list of companies that have gone into run off or are about to go into run off, that is the source of the problem.

Okay. And my next --

I don't know if that answers your question.

Yes, it does. Thank you. My next question relates to title insurance, just trying to get an indication of the trend of volumes in the month of April. I don't know if you have any statistics?.

No, I don't. Have I nothing for April.

Okay. Thank you very much.

You're welcome. It appears we have no further audio questions at this time. Okay. If there aren't any, again, I appreciate your attendance in this conference call and participation and as I say, your continued interest in our company and we look forward to visiting with you in the next conference call for the June quarter.

You all have a good day. 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.