Old Republic International Corp (ORI) 2004 Q4 法說會逐字稿

Welcome to the Old Republic International fourth-quarter 2004 earnings conference call. Today's call is being recorded. At this time all participants are in a listen-only mode. Following the presentation we'll conduct a brief question-and-answer session. Instructions will be provided at that time for you to queue up for questions. (OPERATOR INSTRUCTIONS). I would like to remind everyone that this conference is being recorded. I would like to now turn the conference over to Ms. Leslie Loyet. Please go ahead.

Thank you again for joining us for Old Republic's conference call to discuss fourth-quarter and year-end results. 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 on line who did not receive a copy you may access it at Old Republic's website at www.OldRepublic.com, or you can call Samir Patel (ph) 312-640-6771 and he will send you a copy immediately.

Before I turn the call over to Al Zucaro, Old Republic's Chairman and Chief Executive Officer, please be advised that this call may involve forward-looking statements as discussed on the ad 5 page of the press release. Risks associated with these statements can be found in the Company's latest SEC filings.

Additionally, we wanted to let people know that the information statements made during the call are made as of the date of this call, Thursday, January 27, 2005. Listeners to any reply should understand that the passage of time by itself will diminish the quality of the statement. 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 consent of Old Republic.

With that I'd like to turn the call over to Al for his opening remarks.

Thank you, Leslie, and thank you all for joining us on this regular quarterly update on our business. As you saw in this morning's release, the last quarter of 2004 had the makings of a positive year-over-year comparison, but it was somewhat derailed by a couple of special charges that we preannounced a few days ago.

Those of you that have followed Old Republic for a while will remember that we started 2004 thinking that our general insurance business would be the engine so to speak that drove our bottom-line for the year. And would thus be a counterpoint, if you will, to the weaker performance that we expected for our two housing related businesses of mortgage and title insurance. We also envisioned that the mortgage and title segments would probably reflect year-over-year comparisons for the first half of the year that would be on the poor side, but that they would both show a gradual improvement as the second half of the year rolled on.

As matters of course have turned out we obviously hit the nail on the head when it comes to general insurance, but we faced disappointment with the other two major segments as the performance of both lagged prior year results throughout the year admittedly in varying degrees.

Looking at our general insurance numbers, however, we've been posting very fine results for the past 5 years and those results have been driven principally -- or almost totally I should say -- by improving underwriting performance. So that the 90.7, 91 percent roughly combined ratio we registered for all of 2004 represents the best underwriting performance we've achieved since -- oh, I'm going to say since the mid 1980s at Old Republic.

In this business of general insurance nowadays we're fundamentally involved in 12 major coverages of which, of course, truck liability and physical damage are the largest and they account for almost 40 percent of our earned premium base. Of these 12 coverages last year all but one were profitable from an underwriting standpoint. And as a matter-of-fact seven of them, as I look at these stats here, seven of them reflected greater underwriting margins than they did the year before.

The lone recalcitrant line, if you will, continued to be our general liability insurance coverage which turns out to be about the fifth largest we have with something less than $100 million of earned premiums annually or just shy of 6 percent of our total premiums earned in general insurance. And while we don't have, as you may recall, huge exposures at Old Republic relative to so-called A&E or asbestos and environmental types of claims, we do have some roughly 3 percent of our total loss reserves categorized in that area and these are typically the source of occasional adverse surprises for us and add to the volatility of general liability underwriting results.

But leaving this aside, most of the types of coverages that we have, as I say, performed very well and the top line growth they produced was about 50 percent greater than we had thought was achievable as we started 2004. We had just great production successes in our Bituminous companies where their direct premiums crossed the $400 million line for the first time in their history. In Great West, which is our largest single P&C type of operation and is our specialist in the trucking business, it broke prior production records by writing 13 percent more direct volume.

I remember starting the year they were thinking that we would have trouble writing more than 10 percent relative to 2003. And that Company reached almost $700 million of direct volume and experienced some of the very best underwriting margins ever.

We also had very good production and underwriting margins in our home warranty business and that company, incidentally, broke through the $100 million premium volume line for the first time ever. It's been growing like gangbusters and it's been doing it with wonderful underwriting performance for many years now. And we also had very positive underwriting performance in our so-called financial indemnity group of coverages which in our case includes consumer credit indemnity and directors’ and officers’ liability as well as fidelity and surety coverages.

In a similar vein we had great production and underwriting performance in general aviation and ditto with respect to our large national account business that lends itself to the application of alternative market approaches to underwriting and risk management.

So the combination of all these pluses for the large majority of our property and liability coverages -- the combination of those great underwriting results as well as a gradual uptick in investment income, for the first time I might note in the past 5 years, produced the best operating margins ever for this part of our business.

As has been the case fortunately for us, prior year's claim reserves have continued to work out positively. And they did so last year as they now have done for 14 consecutive years. And finally, with respect to general insurance, we experienced just great operating cash flow. It grew by about 31 percent to a little more than half $1 billion in 2004.

Looking at the bottom-line from a contribution from our Mortgage Guaranty segment, obviously that was not as good as we had anticipated at the beginning of the year, as I said before. The big detractor in this part of our business was the claims portion of the income statement and that's evidenced in the numbers you have there in the statistical exhibit we furnish with the press release by a better than 50 percent increase in the claim ratio to 35.what? -- 5 percent last year. And that was up from 22.6 percent in 2003.

Claim costs have been rising fairly consistently since the second quarter of 2003 with respect to our Mortgage Guaranty business and, as we have reported consistently each quarter since then, increasing claim costs have been basically a function of a greater number of reported defaults turning into claims as well as higher average or what we refer to as average greater severity of claim costs.

And while I might say that a single quarter is too short a period to be indicative of a departure from trends, the final quarter of 2004 did provide some relief as you can see there as paid losses declined roughly 200 basis points and the loss of -- or reserve additions for the quarter were somewhat muted when compared to those that occurred in the first three quarters of the year.

As you can see again in the statistical exhibit, the fourth-quarter loss ratio came in at 38.9 percent versus 41.4 percent that we posted in the preceding quarter. Top line wise, the final quarter as well as the full year reflected flattish trends for Mortgage Guaranty. And while we did enjoy significant persistency improvement steadily throughout the year, the positive affect of this factor was largely countered, as we said in the press release, by greater reinsurance sessions and no input to speak of from new insurance written.

But leaving aside these negatives and putting this part of our business in perspective, there were positive aspects to the Mortgage Guaranty operations last year. On an apples-to-apples basis the expense ratio actually declined by some 40 basis points. That takes into account some extra expense credits we had in 2003 and eliminating those and coming to, as I say, an apples-to-apples basis we did get some improvement in expense control and reduction in 2004.

Also, even though we had higher claim costs, our operating cash flow grew by almost 11 percent in Mortgage Guaranty and broke a new record reaching $250, $251 million for the year. And I might add that operating margins for this business remained at reasonably high levels and continue to be the best we have in any part of Old Republic's business.

With regard to our title business -- very little to add there that was not covered in the press release this morning. The story here has been pretty consistent throughout 2004. Premium volume comparisons were a lot stronger in the first-half than we had expected and a lot weaker in the second half and that's just about the exact opposite of what we had anticipated at the beginning of the year. It was a pretty uneven market for us and given the natural lag that exists in this business in reducing costs as revenues decline, we just weren't able to coordinate those trends between revenues and expenses and we ended the year with a greater expense ratio.

As we reported this morning, however, the upward trend in this ratio was obviously exasperated by the need to penalize the segment by a court ruling that we received January 20th of this year. That in fact increased our exposure to a litigation that had been there since 1997, 1998. Pretax, this higher charge added about 220 basis points to full year expense ratio and better than 800 basis points to 4Q '04 expense ratio.

The remaining of our business which is represented by the corporate operations we have here in Chicago as well as those of the small life and health business that we conduct both here and in Canada was penalized also by an extraordinary charge, or non-recurring charge I should say, of about $10.5 million. And as we reported in the press release, the charge stems from a revaluation on our part of acquisition costs we had previously deferred for a book of term life insurance business that we terminated, discontinued towards the end of the fourth quarter of 2004.

In looking at the history of that book and the cost structure that attended to it we made the judgment after doing some accounting and actuarial studies we made the judgment that persistency assumptions that had prevailed while the business was being actively managed would likely differ going forward and, as a result, we came down to a write-down of $10.5 million which represents maybe 25 percent or there about of the total deferred acquisitioning cost we had attached to that book of business.

If it weren't for these special charges both on the pretax as well as post tax basis you can quickly see that 4Q operations would have reflected a slightly higher earnings for the -- versus 2003 and full year results would have been down about roughly 3 percent as I see it instead of the nearly 9 percent that the final numbers came to.

Having said all of this I think that our total business continues to be in very good shape. Operating cash flow last year was up almost 17 percent to $881 million. Our invested asset base continues to be of very high quality. And again, the totality of our claim reserves continues to play out very positively. This of course augurs well for the future in that there should be very little likelihood that we should have any significant reserve efficiencies to own up to.

Looking ahead a little bit, early on in the year now we still aren't finished with our budgeting process for the year. But as we see the world we do we expect some improvement in the Mortgage Guaranty business both from a top line standpoint as well as from an expense control standpoint as well as from a continued upward tilt to the investment income line. So we have pretty high expectations at this juncture that Mortgage Guaranty should perform better in 2005 than it did in 2004.

The title business is a little dicier situation in terms of making informed projections. Right now we would opt for probably more of the same without of course any extraordinary or non-recurring charges. And if anything it might be slightly lower than the results we've posted in 2004 on a normalized basis.

Our general insurance business right now we don't think that we're going to have the 17, 18 percent increase in volume that we experienced in 2004. But we're confident that we're still going to get some growth at the top line. And as I indicated before, given the strength of our reserve structure we think that that business should continue to produce very fine underwriting results with a combined ratio ranging in that 91, 93 percent in area.

We think that in most of the areas in which we underwrite that we've got still reasonably stable markets. As we reported before or in the past couple or three quarters or so, our D&O, E&O line has got some softness in it. But still even with somewhat lower price structure we still expect it to produce very good underwriting results going forward.

And the other lines I think are in very good shape from a competitive standpoint such that I think the general insurance business for Old Republic is going to continue to be the main engine leading to some hoped-for growth in the next 12 months or so.

That's about the extent of the comments I was planning to make. So, as in the past, as has been suggested before, we'll open it up to any questions you might have.

(OPERATOR INSTRUCTIONS) Stephan Peterson, Caronia.

Just a couple of very general questions on mortgage. During Magic's call we heard a little bit more about lender paid mortgage insurance in response to 80/10/10. I was wondering if you might be able to comment on these LPMI's a little bit and what that means maybe for the industry and maybe Old Republic's perspective on that. Then I've just got a couple of quick follow-ups on title.

The 80/10/10's have been an issue for the industry and ourselves for several years now. There's no question that that product or that level of self-insurance, if you will, by the mortgage lenders has in fact served to take business away from the table at which Mortgage Guaranty operations were operating. So we have obviously had an impact and that's shown by the greater difficulty that we have in growing the top line.

Other than that I don't know what else I can add. I think the product appears to be here to stay. As you know, in our property and liability business we have a credit indemnity product which attempts to compete in that area to some extent and that's doing pretty well for us. So we're able to have some level of offsetting premium production, but certainly not for the entire amount that we could otherwise have.

And then I just had a quick follow-up. I'm not sure if you saw this, but yesterday apparently Fitch put out a quick note indicating that the U.S. title insurance industry may face some additional scrutiny from regulators in some states. And they're talking about reinsurance practices in the title industry specifically possibly running right up to the line in terms of RSPA requirements. Is that something that we need to be worried about in terms of Old Republic or the reinsurance that you guys buy?

From a reinsurance standpoint, a title business basically we're involved in a facultative way to seed parts of the business where we're in excess of our retentions. And then of course we are participants in assuming business from other title companies in a similar fashion. And that's business that's been there for a long time and I don't think that's at issue relative to the question you're raising.

With respect to captive insurance as such, we continue to hear that some competitors are either involved with or are expecting to be involved with captive title operations. From our standpoint, to the best of my knowledge, we don't have a single captive operation in effect with any producer. So to the extent that there is any kind of review of that area we should not be touched by it.

And last quick question -- in the last couple of calls you've briefly touched upon asbestos as an area that you're keeping a close watch on in terms of reserves. And for a while now that general redundancy in the overall book has made up for anything that you might have tucked away into asbestos. Any update there that you can share?

Yes, as I tried to say before, Stephan, that the A&E exposure that we have is basically located in the general liability line. And that line tends to be kind of sloppy for us. The loss ratios vary all over the place and they are generally affected by the A&E area. We had a little bit more of an expense coming from A&E in 2004. As you've said and as you recall properly, we do have offsetting reserves elsewhere which were utilized as an offset and therefore it did not impact the income statement significantly.

I think the average is running less 5 years. I think the average is running about almost 3 percentage points of loss ratio per annum being accounted for by both legacy as well as a little bit of ongoing A&E exposures we have in our regular business. So again, from a reserve standpoint it's not a huge part of Old Republic's reserve structure. And from the standpoint of our total incurred losses, as I've said in the past, I would categorize it as being nipped now and then by some surprised adverse development of individual claims.

Terrific, thank you very much.

Geoffrey Dunn, KBW.

First, your comments on the MI paid claims; again, while no one quarter makes a trend, given your delinquency inventory and some degree of clarity into the next couple of quarters, do you think we are seeing some stabilization there and that some of that seasoning of the bulk product has finally leveled out?

Well, addressing your second point first, Geoff, as you know, Old Republic came to the party kind of late when it comes to bulk, so that part of our product is reaching seasoning levels slower or later than someone such as MGIC which was at the cutting edge of the product. We think that with respect to that, even though that product, as you know, from the statistics you have there does not account for a big chunk of our risk exposure, it's still continuing to mature and so we do expect that part of the loss ratio to inch up some more for the next 12, 18 months I would guess from where I sit.

With regard to the other part, or the traditional part of the business, as you know, our position has been that we throughout 2004 and part of 2003 when the loss ratio began to creep up -- we have felt that we were incurring the lagging effect of the recessional loss in jobs. And that, as I say, is continuing throughout 2004. Maybe we've reached bottom in 4Q. And our conservatives vent says to us we should wait a couple more quarters before we can start counting our chickens.

Okay. And then a follow-up on the property casualty business. To your comments about some softening conditions in D&O and E&O, does that change your retention appetite? I think if I remember right you upped the retention a couple times in the last few years.

Right, and you're correct about that. Right now that business does not come up for reinsurance until sometime April or May of this year and we'll take a look at that point. Our retention -- the level of our retention, Geoff, has been a function of two items. One, it's been a function of capital availability with which we have been blessed. And secondly, it's been a function of our -- the amount of risk we want to take relative to the reinsurance markets.

For a long time we have felt we have had less confidence in some markets and therefore rather than placing the reinsurance we've kept it. We think we're going to keep our existing cadre of reinsurance companies, so therefore that would imply that the retention we would go forward with would be at about the same level in 2005.

Okay, thank you.

Kelly Nash, KeyBanc Capital Markets.

A couple of questions. First, can you discuss again a little bit more about the geographical concentration in the mortgage insurance segment and how that impacted what happened in the segment and the increasing that we've seen -- although a little bit of improvement in the fourth-quarter here. But what's going on with the loss ratio? Is that still really focused in certain geographic areas?

Yes, you've got some states that do have a higher loss ratio and those states are not -- let's say if you're looking at a 5 or a 10 year spread you don't necessarily find the same states participating in the contribution to either higher paid losses or higher incurred losses. And the reason for that obviously is that the economies of the various states or regions are not always in sync.

But we think -- in a general way we think that Old Republic's Mortgage Guaranty business is well diversified today and is going to reflect basically the same national pattern that you seen with respect to the other competing companies in the business.

If we look at the second half of the year or the third quarter moving into the fourth quarter --

Of '05?

Right, right. Going into the second half of the year, would you expect to see then significant improvement in the key areas that have been more of an issue for you more recently?

Yes, I mean the big picture as we see it is that the economy is improving and continues to improve, that jobs continue to -- the number of people employed is going to continue to grow, perhaps not as regularly as we might like to see, but from an overall standpoint the trend is up and positive from that standpoint. And when you come right down to it, good employment figures and employment stability are important to the Mortgage Guaranty business.

So if all of that holds true over time we should see an improvement in the loss ratio. Is it going to happen in the second quarter, third quarter, fourth quarter? I don't know, but I would expect that this coming year should be better for that business than it was in 2004 from a loss ratio standpoint. As I believe I indicated before, two of our current plans are such that we think we can do perhaps even more aggressive job and expense control and whatever we do in that area should also obviously benefit profit margins.

Okay. And then in the general insurance segment, how much of your expected growth in '05 is coming from rate increases versus an increased assumption of risk versus new policies?

Very little in terms of rate increases, if any. All of the growth that we expect to have is going to come primarily from continuing geographical spread in some of our businesses particularly with respect to our Bituminous and Great West companies as well as the growth of the businesses of our customers. As you know, premiums are typically a function of either payrolls or sales or miles driven or what have you. And as the economy remains strong our customers -- hopefully their businesses will benefit from that strength and lead to a greater need on their part for insurance protection and therefore higher premiums based on similar rates.

And then in assuming a risk, are you planning to assume more risk within this line?

Which line?

Within the general (multiple speakers).

No. Where matters now stand, we'll probably if anything buy more catastrophe type of reinsurance covering our workers comp area. But in terms of the so called working layers or the lower retention levels, we're pretty much going to stay where we are.

And finally on the title side, can you discuss what was different from the court decision that caused the need for the increase in reserves versus what you had previously established?

It was just an assessment on our part together with lawyers modeling the initial verdict in various ways and trying to figure out which parts of the verdict we might win on, which ones we might lose on and coming to a conclusion as to what our likely exposure was. And as a result of this appeal court decision we lost on all counts. Therefore, what we posted was the difference between what we had up and the totality which amounts to, as you see in the press release, a pretax number of 22.2 million.

Great, thanks.

Greg Peters, Raymond James.

A couple of questions for you, Al, and primarily focused on the risk management business. Because you give us so much detail about it in the press release I thought maybe you could follow up with your initial comments. Give us a sense of how that business is. Give a sense of how much it accounts for in terms of the bottom line, in terms of the top line. Just give us an overall view of the market in terms of the risk management side of the equation.

Well, that business basically accounts for something like 40 percent of our direct premium volume. It is highly concentrated into -- in the workers compensation line and secondly in the automobile liability or truck liability, in our case, line. Those are the two key coverages that risk management attends to.

When you said 40 percent of direct premium written, how does that compare with what it was say 2 or 3 years ago?

Okay, 2 or 3 years ago -- or actually let's say 4 years ago when the market started to change and tighten up, that business was down to the high teens and low 20s -- 21, 22 percent. So we've more than doubled that business since 2001.

And if we go back a cycle before, if we go back to the mid '90s, was its concentration as a percentage of your total book as high (multiple speakers)?

If you go way back through several cycles, Greg, if you go back to the mid-1980s, the risk management business at that time was about 60, 70 percent of all Republic's total general insurance business. As we diversified the book and took on more traditional risk transfer business such as the formations of various joint underwriting ventures such as our E&O business, our aviation business, the mergers with the Bituminous and Great West business, the configuration changed. On top of that, as the 1990s came about, this area of risk management or alternative market approaches changed dramatically from the standpoint that you had quite a number of companies entering and participating in the business.

I believe that through the end of the 1990s we had as many as 15, 16 companies that were real factors in the risk management area. Today one has come on board recently but we're still dealing with maybe six or seven companies that have any kind of bearing on the business, so it's become much more concentrated. And then finally to add to that, what has also changed is the fact that if you recall back in late '03, '04 we had bought a book of business on a renewal basis from the Kemper operation and that obviously has aided and increased our interest in that part of the business.

They had two aspects of that business that were up for sale and you only bought one of them, is that right?

Well, the business we looked at is what we would classify as risk management or alternative market business. I think you're right, there was another book there that was run in tandem but we didn't look at that.

What was the difference between the two books?

One had more risk attached to it, more traditional aspects attached to it as I remember. The book we looked at was more our type of business, although, as matters turned out -- I don't have the exact numbers -- but we did not renew more than half of it. It was substantially less than that.

So you gave us perspectives on the top line, what about the bottom line -- the impact on pretax earnings from this business that's now a fairly sizable part of your top line? How much is it hitting (multiple speakers)?

We speak about that business, but you have to consider, Greg, and I'm sure you'll remember our having said this before, that that's for national accounts. We also have a similar approach in other parts of our business -- let's say in our trucking area through Great West. We do parts of that business, namely with large trucking operations on a risk management basis.

Also the approach of having an assured retain a substantial part of the risk through a retention of some sort is something that is a concept that applies to other parts of the business, let's say like our credit indemnity business for example where we have retro rated types of contracts. That's why we're reluctant to separate the business because it cuts across a big swath of our business, i.e. the approach does, and therefore it's not a stand-alone type of operation.

But could we say since it's 40 percent on the top maybe it's 40 percent on the bottom?

I would not go there for the simple reason that that business, in it's various complexions, tends to be more of a combination service and reinsurance business. And therefore it does not have the same kinds of divisions between direct or gross premiums and net premiums that you find in the traditional side of the business.

If we look at that market going forward, I imagine it's got to be becoming increasingly more competitive just like the broader market.

It comes and goes, that's right. You always get new entrants.

So how are conditions evolving there? Is the insurance reducing their retentions? Is that how we're getting it? Is it in looser letters of credit and those type of underwriting factors or how is it taking hold this time?

So far at least we don't see any significant deterioration in terms and conditions which is what I think you're referring to. And I think the plays that are there are all companies of some significance in terms of size and staying power. And I think as a result of there being fewer of them there is less opportunity so far for people to do stupid things. But if the past is any indicator it's bound to happen sometime down the road as companies get more of an appetite to grow a top line in particular and at that point we'll have to take a look at it. But so far, so good.

Fair enough. I appreciate the color there. On the property casualty, the general insurance group overall, I really get the sense the reserve position -- the capital position is probably at the strongest level it's been at in probably recent history. I may or may not be right on that assumption, but I thought maybe you could just remind us or tell us what the -- I think you filed that it's the reserve/surplus ratio -- give us a sense of where that was at the year-end and how that compares historically. And then also tie in just a quick comment; I know someone was asking about your asbestos and maybe you might give us an update on what the survival ratio was at the end of 2004?

Taking the first question first, the risk to capital or the reserve to capital ratio which we measure, as you know, both on the gross before reinsurance and net of reinsurance basis, has inched up a bit since year-end 2003. Maybe it's 7 or 8 percent higher. We're still --.

Is that on a gross and a net basis?

Yes, right. So we're still within a -- we're still in a situation where we can leverage that balance sheet pretty significantly without exposing our financial ratings which are critical to us. And the growth in that ratio is a reflection of the greater volume that we've put on the books particularly when it comes to the gross side.

With regard to the other question, I don't have the survival ratio. They've gone up from where they were. Last time I looked from where they were in 2003. They've gone up some but I don't have them in front of me. We'll have them shortly available when we put together our 10-K disclosures and so forth.

Okay, fair enough. And I have two other questions, so I'm just going to go ahead and shoot away if you don't mind.

Okay.

You said in your earlier comment that you plan to buy more cat reinsurance for your workers comp line this year. Now, if I look at it the total cost of reinsurance in this line, do you expect because you're buying more coverage that the total cost is going to increase or are you going to get more coverage for the same amount of premium? Or -- I'm just trying to get a sense of --.

No, we're talking about spending more money.

You are talking about spending more money?

Right. But we are spending more money in the context of a market with quality reinsurers that is reflecting some decline in prices.

That's what I was trying to gauge.

Okay, so -- and that's one of the reasons we're buying it because we think we can get, one, good quality and, number two, we can pay a more decent price than would have been the case say 3 years ago. It has something to do with our evaluation of risk, risk management, etc., etc. It's sleep insurance.

I understand. Last one. The investment income line in the general insurance segment -- the growth rate seemed to on a year-over-year basis in the fourth quarter -- and to a lesser degree --

Get a little higher?

Yes, in the third quarter, too. It seems like it's been accelerating and almost near double-digit. Have we cycled through the impact of the rates -- the reduced interest rates on your portfolio?

A couple of things are the main drivers of what you're seeing there, Greg. One, as you know, interest rates have inched up on the short end of the maturity spectrum and, as you know, Old Republic has always had a significant short-term investment position. So therefore we've benefited from the simple rollover of those investments from quarter to quarter.

Secondly, as we indicated in the press release, we did change the complexion, if you will, of a portion of our equity investment portfolio, moved a part of it to an indexed approach. And as a result of that the timing was such that we did receive, particularly in the fourth quarter, we did receive some extra dividends on equities at a double credit so to speak. That's another reason why you see perhaps a greater than average increase in investment income.

But as you know, rates are creeping up ever so slowly. So we do think that we should have better investment income prospects in '05 than we did in '04.

Fair enough. Thank you for all your answers. I appreciate it.

Mike Dion, Sandler O'Neill.

Just one question, kind of a follow-up to the last question on reserves, particularly in the general insurance segment. Given, I think, your out performance over the last 2 or 3 years do you think you may be in a position perhaps in '05 if things continue to be stable that you might actually see some reserve releases?

As we have said over time, Michael, we think the way that reserves are set up right now that we should get on average over time hopefully a 2 to 3 percent redundancy, and that's the way the numbers seem to be playing out the last few years. And we are in a longtail business and therefore we play those reserves with that in mind meaning that we're not -- it ain't over until it's over and we're not about to release them before their time.

So to me it's not necessarily an exercise of managing the reserve structure as much as it is to make sure that you've got all your facts for individual claims and you let them mature before you recognize any redundancy. So the reserving process, as you know, is an ongoing day-to-day process; we take a picture at the end of each quarter, at the end of each year, but those reserves are part of a very dynamic process. And in that light I say that if we get 2 or 3 percent redundancy over time we're in great shape.

So I'm assuming that's where you are right now is you ended the year 2004?

Roughly in that area.

Fair enough. Just a kind of follow-up question on the capital adequacy. With respect to what are your plans in 2005 as far as raising the dividend, perhaps having a special dividend or perhaps even a share buyback? Maybe if you could just expand on that a bit.

As you know our history has been to try to have a very steady growing dividend history and I think this is what? -- the 24th year or 23rd year that we've had a dividend increase. Hopefully when our directors meet in March and set the annual dividend rate, hopefully we'll be able to continue in that vein.

In terms of any extraordinary extra dividend as we did back in 2003, we haven't thought about that. We'll certainly take a look at our capital levels and the leverage that we're going to have as a result of our -- of putting together our budgets, finalizing our budgets for 2005. And as the year wears on we'll take a look. In terms of stock buybacks at this point in time we have authorization to buy back some but we haven't executed on that.

Do you know what that authorization is -- the amount?

It's 250 million if I (indiscernible) remember.

$250 million?

Yes.

Okay.

I'm looking here through the -- I think we've got that set forth in the 10-K someplace. I think it was renewed last -- I can't put my hands on it but I think it's 250. But we haven't breached that at all. It's still sitting there.

And that's something that as you complete your 2005 budgeting process --?

We'll take a look at it.

Yes, at that time, okay. Thanks very much.

Bill Laemmel, Divine Capital Markets.

Remember us poor shareholders? We're looking of course at the operating cash flow counts being the strongest accounts you've got across the board and we have positive anticipations there come February. But give us an idea -- the revenue has been growing along about 17 percent in the general insurance and I think with the prices being over -- price increases -- that that's too high. That kind of assumption is too high. Is that a fair --?

Which assumption is too high, Bill?

To continue along at 17 percent revenue growth in the general insurance area.

I think I intimated that -- that we don't, as we're starting 2005, even though we don't have our budgets finalized that we're not looking for that. By the same token, I have to say to you that we started out 2004 thinking that we would grow that general insurance line by 10, 11 percent and we pretty consistently each quarter of the year beat that handsomely. And that's a reflection of our just reacting to the markets which is the way we want to operate. You (multiple speakers) your budgets but you are keeping your ears to the ground and acting, reacting on a timely basis to what you see in the market. That's the way we want our people to operate. So we can get lucky and write more than 10, 11 percent.

Okay. I just thought that premiums at 10 percent would be a much better guess than the 15 to 20 percent.

I would say that's probably a safe assumption, yes.

And then we'll have a little bit of help from net investment income.

That's right.

And probably lose -- realistically you've got to lose a couple of percent there in the operating profit margin because that sort of makes a more reasonable thing going forward. And you were pretty explicit in your thoughts on Mortgage Guaranty, I think we got that right. Title expenses, any focus there?

As you may recall from our experience in 2004, particularly in the first half of the year when we were dealing with an up and down mortgage market -- we had a tough time anticipating where that market was and therefore lost an opportunity to perhaps be more -- firmer on the expense control side. And then the second half came along and we had different issues to deal with so that's a hard one to predict. Obviously if our current thinking is that the top line is not going to do much in title insurance we should be able to cut back on some of the expense, but how much at this point in time I don't know.

Okay. Thank you very much.

Chris (indiscernible), (indiscernible) Brothers.

My questions have been answered, thank you.

At this time there appear to be no further questions.

Okay. Well, again, thank you for your interest and I appreciate your taking the time to be updated on our company and look forward to visiting with you again for the first quarter update sometime in April of this year. You all have a good day or afternoon.

This does conclude the conference. Thank you for your participation. You may disconnect at this time.