Old Republic International Corp (ORI) 2006 Q1 法說會逐字稿

Good day, ladies and gentlemen, thank you for standing by. Welcome to the Old Republic International first quarter 2006 earnings conference call. Today's call is being recorded. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for your questions. [OPERATOR INSTRUCTIONS] I would like to remind everyone that this conference is being recorded.

I would now like to turn the conference over to [Leslie Loyette]. Please go ahead.

Thank you. Good afternoon and thank you all for joining us today for Old Republic's conference call to discuss first quarter 2006. 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 on Old Republic's website at www.oldrepublic.com or you can call [Deanna Walcott] at 312-640-6771 and she will send you a copy.

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

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

Thank you, and good afternoon to everyone. Even though -- even though we don't manage our business on a quarter-to-quarter basis, I have to say it's always good to close the books on yet another quarter and see that no significant impediment has come to -- has some about to undermine our long term prospects. So in releasing the numbers for this most recent quarter, I'm happy to report that nothing much happened that was out of line or out of the ordinary. And I would characterize the quarter basically as same old same old, insofar as we are concerned.

As usual, I'm not going to bother rehashing this morning's earnings release since you can read the hard copy you have or you can read the release on your PC screen. So I'll just embroider a bit and add a little color, if you will, to what we've published this a.m.

As usual, starting with our General -- or Property and Liability Insurance business; we posted about a 6.7% increase in first quarter EP's, earn premiums. And for those of us -- for those of you that follow Republic, you may recall from last quarter's year end visit, we indicated that we expected growth in General Insurance -- or in premium in the 6 to 9% range. And, of course, this is -- this first quarter is -- is on the low side of that range. But I think it's a good start to -- towards gets us closer to the higher end of our objective for the year.

The six largest coverages we underwrite at Old Republic, and that includes lines such as worker's compensation, CMP and inland marine, truck physical damage, and truck liability, as well as home warranty and our credit indemnity business; those six lines or so were up about 7% in the aggregate year-over-year so far. And that's versus the 6.7% that I mentioned before as our overall rate. We continue to think that this top line growth reflects mostly -- reasonably firm pricing, insofar as last year's premium production, which obviously, is now working it's way through the earnings stream.

And on top of that, we think that what we're putting on the books, currently, still has good pricing attached it to. And as you know, we're mostly a liability underwriter, and we're not, therefore, exposed to much of what is happening on the property side of the business. So with a combination of firmness in -- in what we write, as well as some continuing opportunities -- we have had to write new business, primarily from additional agency plant expansion that we have had for several years now and which is bearing some fruit, as well as the continued geographic expansion of our business; that all of that is additive to the top line.

From a loss ratio standpoint, as you saw on the release, General Insurance lines were fairly consistently down last quarter vis-a-vis the same three months of 2005. As you can see for all of the lines combined, the loss ratio came to about 64.5%. And that ratio, incidently, is one of the lowest levels achieved in a great many years for us. This result as has been the case for some four years now -- this good result is, obviously, in our case, continue -- continues to be driven by two basic factors. One, a reasonably stable paid loss trends and you can see that on the paid loss ratio, which again appears in the statistical exhibit that's attached to the press release. And also in our case, a loss reserves structure that continues to provide positive overall surprises rather than bottom line destructive efficiencies.

Expense-wise, again, as you can see, the quarter-over-quarter comparison is negligibly negative. But our judgment -- this is mostly reflective of some small shifts in the mix of business and the costs attended to them, as well as some seasonal expense accrual items. So we wouldn't make much out of this. And we still think that -- the full year will probably shake out within it's usual 24 to 25% expense ratio range for General Insurance. So when you take together the claim and expense factors -- they obviously produced very favorable composite ratio, which led to strong underwriting results for this first quarter of this year. And when we add to this mix of good underwriting performance, a gradually increasing contribution from investment income -- this part of our business, obviously, turned in a very good double digit bottom line growth in the mid --- mid-teens, as you see there, for the first three months of this year.

The two other major groupings of insurance coverages we -- we offer at Old Republic, obviously delivered much less stellar results. But we nonetheless think they were both expected. And as a matter of fact, I think pretty good given the market environment we're dealing with.

In the first quarter, Mortgage Guaranty premium growth resulted totally from premiums earned on bulk business in force and-- and bulk risk in force, which is a pretty good proxy of how much of our total business comes from that area. Represents roughly 11% of our consolidated Mortgage Guaranty net risk in force. And that's up from about 6.5% one year ago. So that even though production of bulk insurance, as you know, has been up and down quarter-over-quarter, over time, we have managed to increase our share of that particular part of the Mortgage Guaranty business.

While -- I might note that while traditional primary business persistency trends have continued on an upward tilt, and the average premium rate we're booking is -- continues to be slightly higher quarter-over-quarter -- I think currently, it's running about two basis points higher -- new insurance written trends, of course, continue to be affected negatively by lower mortgage originations, nationally. In combination, however, these pluses and minuses produced a positive earned premium growth of about 3.4%, as you see in this morning's financial release. That's a little more -- when I look at the numbers here-- that's a little more than, what, double the average quarterly rate we booked in the four quarters of 2005.

Looking at claim costs in mortgage insurance, the ratio of incurred claims to premiums, as you see, was about almost 39% -- 38.8% to be exact. And that was slightly higher than the 37.2% experienced for all of 2005, somewhat below the -- the fourth quarter of '05, however. The factors that affect the first quarter's claim ratio were basically a mixed bag. On the one hand, there was a positive in the form of fewer traditional reported delinquencies and -- and also a small reduction in paid claims, in comparison to the preceding quarter. But on the other hand, these positives were negated somewhat by the need we saw for listing some reserves, primarily in the sub prime claims area. As well as beefing up a little bit our loss adjustment expenses, since it seems to take a little longer for claims to be digested through the system.

General expense-wise, the latest quota's ratio for Mortgage Guaranty of about 23.7% is just about on the par with the 23.1% that we booked in the first quarter of '05. And I think it's likely to trend toward the 22.5% or so of 2005 as this year progresses. And then finally, I might note that the Mortgage Guaranty bottom line -- again, as you can see from the little summary we have in the press release -- that that bottom line got a bigger boost from investment income. Though I have to say that some of the -- some of that boost came from very positive seasonal cash flow factors, as well as an uptick in short-term interest rates that you are all familiar with.

Now lastly, turning to our Title Insurance line -- the information in the earnings release, again, addresses the key factors that produced a downdraft in the first quarter's earnings. Most of the growth in premiums and fees, in our case, came from agency-produced business which typically, as you know, reflects a 60 to 90-day lag. And of course, these higher revenues are, therefore, mostly representative of the stronger housing activity in the order book we had in last year's final quarter.

On the other hand, as we noted in the release, our western operations, which are mostly carried out on a direct basis and are therefore, much more reflective of real time housing activity, if you will, those -- that part of our business was affected by both a turn down in closings, as well as -- as we mentioned, an expense load, which we weren't able to reduce as quickly as necessary. I have to say we do have plans in place to react more timely on the expense front if housing activity fails to rationalize our cost structure, which is built in anticipation of a much higher volume of business. Although I'm sure you saw in yesterday's press, the fact that housing activity had picked up quite a bit in March. So we're going to have to take a looksy, and see what that portends for us, going forward.

In total, we think that Old Republic's business produced decent results in this year's first quarter. Again, in the content of the various markets and economic conditions of those markets that we deal with. Asset quality remains in tip-top shape for us. And the aggregate reserves we carry for claims continued to pan out positively. And therefore, they are not draining profitability from current year business. Each of our operating sectors were operating in a cash flow positive fashion in the latest quarter. And therefore, that additional cash flow was very additive to the invested asset base. And of course, again, the continued rise in short-term interest rates is beginning to have a favorable affect on our investment yields, particularly when you consider that we -- we tend to have a reasonably short maturity portfolio at Old Republic for the totality of our -- of our business.

Let's see. I guess to close up on this -- these few minutes of comments on our part, I guess we continue to -- to believe that overall results for 2006 should be decently positive in comparison with last year's equivalent earnings. It's likely -- it's more than likely that Title Insurance will be something of a drag on total results, since we do not expect 2006 housing and mortgage lending activity to be much better than that of 2005. If anything, if we were to bet, it would be on the side of a -- of lower activity this year. On the other hand, our Mortgage Guaranty lines should hold its own. I wouldn't be too surprised to see 2006 MI earnings to be at least as good, if not somewhat better, than last year's.

That leaves our General Insurance lines, and with respect to them, our expectations at the beginning of this year remain very viable. At this juncture, I just don't see the makings of any wholesale price declines in the markets in which we offer our products. And as I have already said, our claim ratio for the overall -- for the totality of the coverages we -- we sell at Old Republic, should remain within the confines of the 65 to 67% range. And with the continued and continuing emphasis we have here and the discipline we have in the managing the risks of this business, I think we have a good shot at delivering a very fine General Insurance composite underwriting ratio within a range of 91 to 93%. Which, for 2006 -- which I believe we mentioned at the beginning of this year.

As I look at my notes here, that's about the extent of what I was prepared to say. And as was advised at the beginning, we'll open up to any questions you have.

Thank you. [OPERATOR INSTRUCTIONS] And we'll take our first question from Stephan Petersen, Citadel Investment Group.

Hello, good afternoon. How are you? [overlapping speakers]Very well, very well.

Good.

Two quick questions. Considering your results in GI and as successful as you have been in transportation; why it is that -- that we're not seeing some additional competition in that sector? Why is it that you guys seem be operating under the radar screen? And consistently delivering these great results and seemingly a bit isolated from new competition?

Well, I'm pretty sure of this, Stephan that -- the companies that compete in trucking with us directly are also doing reasonably well. So I don't think we're alone in that. In terms of -- even though I like to brag that we do look better than most.

On the other hand, in terms of -- of competitors who are not as oriented to the trucking business, I think it's too early in the cycle. Typically, what happens is that you have to have a lot of sweating of prices before competitors that are not normally associated with the trucking business jump in and start doing damage to the pricing and underwriting configuration of the business. So I think that's my best answer. It's too early. I think companies are still out there -- are still pretty tight, as you know. There are still reserve issues that they need to deal with, expense issues with -- and therefore -- some of them still have a capital structure that's been maimed by the hurricane losses of last year. So I think companies, generally, are playing it pretty close to the vest. And therefore, haven't yet reached a point where they are going to become so undisciplined that -- that they will have a major bearing on what we do in trucking.

Got you. And then I just would like -- if you might revisit your comment on the MI business. And -- in terms of the LAE comment that you made. And maybe you could provide a little bit more color as to why the adjusting process seems to be taking a little bit more time than it has historically.

Well, I think one of the things that -- that's happened in that business and that we have all been conscious of, is that we went through a period of high refinance activity, both in MI as well as in Title. Which tended, I think, to postpone the emergence or recognition of loss activity. We were able to, I guess for a lack of a better expression, paper over -- or the market was able to paper over some of the credit issues that were there. And then you had some regional labor -- or job issues to deal with. And I think it's all coming home to roost now. And I think the loss ratio in that business, at least for the traditional part of the business, is probably going to settle down in the-- in that area of 35 to 40%. Which I think is probably a normal range for that business in-- the reasonably good economic times.

In terms of the expense -- the loss expense issue, I think sometimes, nowadays, it seems to be taking a little longer to get rid of claims. And if it takes longer, that means you are spending more money to mitigate them or what have you. And that was the reason we saw to -- to beef up a little bit our loss expense ratio.

Terrific, thank you.

[OPERATOR INSTRUCTIONS] We'll take our next question from Mike Dion with Sandler O'Neill.

Good afternoon, Al.

Hi, Michael.

Two questions; both related to the commercial line segment. First off, I heard some commentary in conference calls this quarter about worker's comp and how problematic that line has been for the industry. And you seem to be able to buck that trend. Maybe just if you could provide a little color on your worker's comp line -- where you see pricing now, where you expect pricing to be, maybe a year or so from now, competition there?

And then secondly, a follow-up to the trucking question. Certainly have seen indications out there that -- as far as drivers go and time under the wheel, certainly there's some safety issues out there, apparently, you are not seeing that in terms of higher losses. But if you can just expand on how you underwrite that business and some of the cautions that you have there.

Yes. Well, our loss ratio in worker's comp has typically -- or traditionally been somewhat below the industry. And one of the reasons for that, and I'm sure you'll remember this, Mike, is that we have a substantial portion of worker's comp rated or underwritten on the -- through loss sensitive programs, with large insureds in particular, whereby the premium can be adjusted depending on the -- on the claims experience of individual insureds. And that's been a safety valve, if you will, for us. And that's the basic reason why we tend to have better results there.

But is the-- is the line, in it's totality, a problem line? Yes, it's been, and it will continue to be. It's very sensitive to -- to the rate approval process on a state by state basis. And as you know, states are very jealous and guard their industries and, therefore, tend to be a little slow on the uptake when it comes to enabling companies to increase rates. But I would say -- I would leave it at that that our major reason for being a little more successful than the run-of-the-mill worker's comp is that we do -- carrier -- is that we do have a big chunk of our business in loss sensitive programs. And that has been historical with us for, at least, the last 40 years.

With respect to trucking, I think you are right on. Whenever the economy heats up, I mean there's pressure all around the system, people loosen up. I mean, the truck companies are very busy. And it stands to reason, that they are all looking for better drivers, looking of keeping the driver's time at the wheel, as you put it, is an issue. And I have have to say we have had our share of -- of greater accidents in trucking in the last couple of quarters. And our loss ratio has tended to -- to inch up. It was up last year, a little bit. It's up again this quarter. But we're still safely below 100. I would say currently, we are running maybe a 94, 95% combined ratio in that line.

Of course what has always helped us in trucking, is that we run a very efficient operation. Our expense load is a lot less than the overall expense load. And so therefore, we can afford to have some give on the-- on the loss side of the business. And that's how we're able to still generate reasonably good profitability in that line.

And are you still expanding that -- that line --

Oh, yes.

-- to the western part of the states? And how is that going?

Yes. Good. We're doing a little bit of business in California, not an awful lot. But the western states and the southeastern states have been areas of good growth for us in trucking. And as well as the core midwestern states, where we have always been strong. Those are still doing well. Our Canadian book -- trucking book suffered a little bit this quarter. But-- but by and large it's been -- we have had good experience there in the last couple of years, it's been a nice market for us. And we're expanding that, not just in the eastern part of Canada, but are attempting to move that line further west, where we have some type of business that fits our operating style perhaps even a little better.

So we're still very optimistic and positive about trucking, whether you -- you speak of it in terms of traditionally underwritten trucking business. Or whether you speak of it in terms of our risk management approach to large accounts -- which we do in trucking, as well as for general industry.

Okay. That's helpful. Thank you.

Okay.

And we'll move to Kelly Nash with KeyBanc.

Hello, Kelly. How are you?

Fine, Al. How are you doing?

Good.

First, I wondered -- can you provide anything more specific in terms of the yield or duration of your investment portfolio?

Well, the yield is around 4.5 this quarter, on an annualized basis. The duration I don't have in front of me, but it hasn't -- that hasn't changed at all from what we published in the 10-K.

Okay.

For December.

Okay. And then regarding loss cost trends, I wonder if you could touch on a little bit --

I'm sorry?

Loss cost trends -- if you are seeing anything change, in terms of frequency and severity, particularly along the lines of medical cost trends.

Well as I think I said before -- we are experiencing a little bit of fever, if you will, on the comp line that started last year. Again, also a little bit of fever on the commercial trucking -- in the trucking line. But the rest of it is in pretty good shape.

General liability, which is a small line for us, but still -- but has so much volatility in -- from a claim frequency standpoint, as well as severity, is always an issue. But again, that's not a huge part of our business. Aviation is doing fantastically well for us. Automobile warranty is doing good. Fidelity insurity is going good. Home warranty is doing a little -- maybe it's got a little bit more loss cost in it, but I think some of it may be some seasonality in some parts of the country. E&O, D&O credit indemnity -- credit financial indemnity types of coverages are all doing well.

So I mean, you can tell from the overall loss ratio of -- what, around 65% or thereabouts for the quarter -- and since I say in the next breath that our prior year's loss reserves are panning out very positively -- that you can tell that we're not having much difficulty in that area.

Is there -- can you quantify the benefit from the prior year's loss reserve in the quarter?

If you look at -- no, I don't have a quarterly number. We don't -- I mean, we do look at it, obviously. But if you look at the 10-K, we have been averaging in -- in normal times, two, three points of redundancy. And that's about where about we should by for this of year.

And then looking at the Title Insurance -- how quickly can you address the fixed cost issue relative to the volume that's been -- as we have seen over the last year or so, with volume changing trends, how -- what are the steps that you can take and how quickly can you really adjust that to -- ?

Yes. Well, as you know, we have roughly 60, 62% of our business in Title Insurance, produced through independent agency channels. And that business is cost intensive from the standpoint of what we have to pay the independents to produce and underwrite, et cetera, and service the business. So that leaves roughly 38, 40% of the business that's written on a direct basis, where we have a lot of internal expense issues to deal with. The point of it that -- and then I say to you on top of that, that most of that business is concentrated in the western states of California, Arizona, Oregon, Washington, et cetera, Nevada. And as a result, there's less of our total expense structure that's truly manageable for us. I have to say also that -- and I tried to say this in my comments -- that we were a little slow or gun shy, in terms of cutting expenses. And historically, our Company has not taken the hatchet, if you will, to -- to the expense portion of the business, again, because of it's makeup, as others may have.

So the long and the short of it is that, yes, we can do something, and we will surely do something. As to how much relief question we can get -- it should not be a very significant item.

Okay. And then overall -- from an overall title industry perspective, are you hearing any legislative initiatives, as far as following some of the title issues that we saw in Colorado or some of the other companies, not your company in particular. But are you seeing any potential changes to the overall title industry?

Well, the title business, particularly from a retail standpoint, is always in the -- under -- operating under a magnifying glass, insofar as the regulators are concerned. And that has become accentuated in the last year or so because of the scandals that you are referring to. And sure, there's some pressure out there to reduce prices here and there. And I'm sure we're going to get some. But I think think business is going to continue to be a reasonably efficient business, from an underwriter's perspective. I think, if you see reductions, they are going to be mostly in the -- on the expense side of the business, as opposed to the underwriting or -- the at-risk portion of the business. Because we can show as an industry -- as an company and as an industry that the pure premium that we get in the business is in fact fair relative to the loss experience we have.

So, yes, there will be some pressure. But I mean, is it the end of the world type of thing that we're looking at? Absolutely not. I think it's still a very vibrate and necessary business. And it is -- the problem with it is, has been, and I'm sure will continue to be, it's basic volatility, in that it is a very transaction-sensitive business. And as such, it makes it a little more difficult to manage in the context of an organization that tries to reduce the inherent volatility of the insurance mechanism.

Great. Thank you very much, Al.

Our next question comes from Greg Peters with Raymond James.

Good afternoon, Al.

Hi, Greg.

I guess I have a couple of follow-ups from some of your answers and your opening comments. I think you were talking in -- talking about frequency and severity -- you mentioned aviation being relatively stable -- that's more physical damage rather than medical, correct?

Well you have a little bit of medical on the liability site when people get harmed -- if an airplane crashes or what have you. But generally you are correct, it's more of a property-oriented type of coverage.

And --

And we do, also -- excuse me, Greg, we do do some worker's comp business associated with our aviation line.

Really?

Oh, yes.

What -- maybe you could give me some added color there, on aviation. I primarily thought of this as a general aviation account -- small private aircraft. Are you taking -- ?

It is. But we have some schools and -- training schools and so forth, some airport facilities. And as a result of that, we do get involved with providing worker's comp insurance to service people that are associated with those organizations.

I see. Is that -- ?

Now is it a huge part of our -- of our comp business? No. It think it's running something under $20 million today.

It's small part.

It's not a big part. Most of it is all in general liability.

Do you use that worker's comp component to sort of attract the account? Or -- ?

No.

Pardon me?

No. No. As a matter of fact, it came much after we got into the aviation business. It was a realization on our part that when we do risk assessment for a particular group, let's say -- or school, let's say, we are, in fact, assessing the comp exposures as well. And therefore, it's -- no pun intended, it's killing two birds with a stone.

In aviation -- I know it's a small business for you guys, but I'm just curious, there's been --

It's good size from the standpoint, we write almost $150 million gross of it.

How have market conditions been? I think I heard some rumors about some -- some new participants or old participants surfacing up at new organizations interested in the market. Have you seen any more change in the marketplace there on aviation?

Well, there's-- there's some spinning off that's taking place out of the AIG organization.

Yes.

But that's the only thing I'm aware of. It's still a small cottage industry, really, when you come right down to it. There aren't that many players and I suspect there will never be that many players. From our standpoint we have got much greater capacity in that business today. And we have got great reinsurance support in it. And therefore, we're able to -- to insure things like corporate jets and so forth, where you need the higher capacity. And I'm saying that only to -- to make the point that we're able to garner business there. Which means, therefore, that the competition is not as acute as you may suspect it is, at least right now.

Okay. Fair enough. On D&O, boy, we have been paying attention to a lot of comments from a lot of different areas on D&O. And I assume your book of D&O is primarily a U.S. market book.

It is totally.

Yes -- as opposed to international. So I thought maybe you could throw your oar into the water, if you will, and give us a perspective on pricing. Since we certainly hear comments from so many of the companies participating in that market --

Yes.

-- whether you think conditions are favorable or deteriorating or --or where you stand, I guess.

Well first of all, as you may know or recall, we have not been a gross line underwriter in D&O, which means that we haven't had the reinsurance or retrocessional issues to deal with, which many writers have had to deal with. Maximum policy limits usually of $15 million or thereabouts for us. We are usually on excess capacity, as opposed to primary capacity in that business. And we're not playing with a -- with rare exception. We're not playing with the Fortune 1000, 2000 -- I would say 1000 company. And the loss experience with those companies from a D&O standpoint is significantly different than it is with the smaller organizations we -- we play with. But admittedly most of the business we do is with publicly held companies. But they are again smaller -- tend to be more under the radar screen, so to speak, than the huge ones.

Is there any industry concentration there?

No. No.

No?

Although we do tend to be in the -- in the-- tend to have reasonably large interest in the high-tech, biotech area of American industry. In terms of pricing, I think you have heard this before, there's been a lot of flip-flopping of pricing. We went through a period of time starting in the late -- in the mid-2004, through the early part of 2005, where prices were softening pretty dramatically. And then a number of -- of high profile D&O cases in particular, hit the press and so forth. And everybody got the shivers and prices settled down. And I think that's basically where they are now. I think we're pretty much in a reasonably settled pricing situation, as we speak.

In the reasonably settled -- or stabled pricing environment, is that a growth business for you? Or is a -- pretty much a -- ?

Pretty much stable business for us. It's following the pricing. That's right. We don't think this is a time for us to go galavanting around and write oodles of business. But it is a matter of keeping what we have at as decent a price as we can make it.

Fair enough. And then in your opening comments, Al, you mentioned as part of our comments, in particular General Insurance -- you talked about the six lines. And then you made a comment regarding agency plant expansion. I was wondering if you could -- ?

Yes, what that refers to is primarily in our Bituminous and our Great West operations -- those are the areas where we write trucking in the latter, and construction business and gas and oil service business in the former. The Bituminous, where we have been expanding westward, oddly enough, in both of those areas -- those companies, as well as in the southeast. And it takes a while between the time you sign up new agents and the time you start getting some business from them. And I think last year, and now this year, we're beginning to experience some growth coming from new agency relationships.

Is this -- a portion of that business is done on a direct basis too, is it not?

Oh, the trucking business. We have maybe 22, 23% of our -- of our trucking business coming from wholly-owned insurance agencies that we have acquired over the years. We haven't acquired any in the last five or six years that which recall.

So when you talk about agency expansion, you're -- ?

We're talking about independent agents.

Fair enough. Thanks for your answers.

[OPERATOR INSTRUCTIONS] We'll move to Mark Finkelstein with Cochran , Caronia, Waller.

Hello, Mark.

Hello, good afternoon.

Good.

Wanted to go back to your comments on Title. I guess it was little bit unclear to me what we should be expecting for 2006. And I guess -- should we be modeling an expense ratio, kind of largely in line with what we saw in the first quarter, call it that 93% range? And opportunities for reductions in that, is more of a 2007 event?

Well, listen, I'm -- you know me well enough that I don't like to play economist. But if I were to do that right now, my gut tells me that this year, we would be very -- in very good shape in 2006 in Title, if we had the same results as we did in 2005. And having said that I would think tha,t probably the -- the first half of this year, which means including next quarter -- still going to be a pretty tough. And the second half should be somewhat better. And I say that only because we are getting some pretty good news about housing starts and housing activity. And when that news starts, it takes 90 days or thereabouts before you get to closing time. But there's no question, that housing transactions -- housing has softened throughout the country. I'm not telling you anything new. And given that and given the transaction-oriented nature of the Title business is what leads me to say to you that, it should not be an easy time for us.

Okay. And just going back to your opening remarks -- I think you mentioned the year-over-year GI growth of 6.7% but the potential to get to the higher end of the 6 to 9% range? Is that one, showing through in the written numbers that you are seeing? And also, is that really based on the agency expansion that you talked about at Bituminous, Great West, et cetera?

Yes. I think it's due to a combination of things. One, we have got great persistency in the business. Number two, we think that pricing is going to remain reasonably stable. Last year we started getting some downward -- we saw it again late in 2004 and throughout most of 2005 -- we had downward pressure on pricing. And then as the year came to a close, that seemed to have slowed down a bit. And today, on average, we are probably still looking at maybe 1%, 2% more on the price increase side than price decrease side. And that's because, as I said before, I think most competitors are still having a tough time in many areas. And you just -- we're not seeing any wholesale pricing pressures in the liability coverages that we're most involved in at Old Republic.

So I would say the persistency, the fact that pricing is in pretty good shape, the fact that we are still expanding some of these businesses geographically, as well as from a market channel standpoint -- that the combination of those factors is what leads us -- or leads me to say -- well, the first quarter was around 6.4% increase, and I think we have a good chance of nudging it more towards that -- that higher end of the range by year end, than otherwise might be the case.

Okay. And then just a detail question -- in the back half of last year, you had higher than normal levels of retro adjustments on your -- I'll call it risk management, et cetera, business.

Yes.

I'm just curious, in the first quarter, would you call as normalized?

No. I think if we did, we would have noted it. No, we didn't. The answer is no.

Okay. Perfect that's what I have. Thank you.

Our next question comes from Ron Bobman with Capital Returns.

Hi, I just had a follow-up on Greg's question. Could you share -- approximately how large the E&O and D&O book is?

It's about -- on the gross basis, it's about $120 million or thereabouts. Maybe little less than that this year.

And you mentioned -- like you said, you're not a gross line underwriter you are keeping it all --

I didn't say we keep it all. I said we keep a big chunk of it.

Okay. What would you hazard the net -- the net number would be, approximately?

Well, let me see I have got some numbers here, I can give you a ballpark number.

Thank you.

Oh, probably in the 50s.

5-0. Okay. Thanks again.

You are welcome.

And there are no other questions in the queue at this time. I would like to turn the conference back over to you, Al, for any final remarks.

No, I don't. I don't have any further comments to make. I appreciate all of the questions and the interest that that you all show quarter after quarter in our Company. And as always, wish you well. You all have a good day.

This does conclude today's conference. We thank you for your participation, and you may disconnect at this time.

Thank you, bye.