Old Republic International Corp (ORI) 2006 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Old Republic International third-quarter 2006 earnings conference call. [OPERATOR INSTRUCTIONS]. I would like to remind you that this conference is being recorded, and would now like to turn the call over to Miss Kathy Waller of the Financial Relations Board.

Thank you. Good afternoon and thank you everyone for joining us for Old Republic's call to discuss the third quarter 2006 financial results. This morning we have distributed a copy of the press release, and hopefully you've had a chance to review the results. If there's anyone on the line who did not receive a copy, you may access it at Old Republic's web site at www.OldRepublic.com, or you may call my assistant, Liz, at 312-640-6771, and she'll get 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 add 6 page of the press release. Risks associated with these statements can be found in the Company's latest SEC filings. With that I'd like to turn the call over it Al for his opening remarks. Al?

Okay, thank you Kathy , and welcome, everyone.

Well, this latest quarter was pretty uneventful in our, what, 83rd year in business. The quarter followed on the same tracks we've been on,that we were on I should say, at mid year. As you see in this morning's press release, our general insurance business doesn't show any inclination to get off its forward tracks. Our mortgage guaranty line is percolating a little bit, and the performance of our title business is reflecting the cyclical downturn in housing and related mortgage markets that everyone on the call I'm sure is familiar with.

And let's see, as we do every time, I'd like to add a little color as you all say for each of our three major pieces of business and then speak briefly to the state of our overall operation. I have to say that we're -- we're as certain as we've ever been that we've put together a nicely diversified book of general insurance business. It's very focused on certain niches like aviation and home warranty. Errors and omissions, risk management, on the one hand, and on some of the very big core sectors of the American economy like trucking and -- and the construction and building trades industries.

Some of you may -- may remember that when we started the year we -- we spoke in term of having expectations of generating 6% to 9% earned premium growth for 2006. And admitted mid year last time we talked, mid year we were somewhat shy of the bottom of that range. We still are for the first nine months. But for the third quarter, we're about 30% above the low rung of that ladder. So with the nine months now under our belt, we -- we think that we'll be close to that 6% mark when this year comes to a close. What's driving these earned premium levels are the basic factors we've mentioned in the past several quarters. We're still enjoying basic price stability in areas such as home and automobile warranty business. In the general aviation area, in the gas and oil services area, and in our large trucking operation.

We're experiencing some chipping away at rates in the 3% to 5% range, in the construction, in the light manufacturing, and the E & O portions of our business, and perhaps we're getting maybe pressure of some 10% or so downward rate pressure for sure in our large account risk management areas and a few other pockets of business that we have at Old Republic. But when you put it all together, our best guess is that we're probably looking at a 3% to 5% rate decline for the overall book of general insurance business that we have now.

In this light, it's a pretty good sign that our loss ratio is -- is holding up in the 65% to 67% range we've posted during the first nine months of the year as has been the case in most recent years. Loss reserves continue to pan out pretty well. And this is, of course, enabling us to give full attention to the current book of business without having to be overly concerned about prior year's adverse lost developments. Expense-wise, the ratio of expense to premiums is remaining within a 24% to 25% bandwidth, and we see this as a pretty good indicator that we're managing our costs in the context of our top line trends.

Yesterday, by the way, many of you probably saw a story in the press release to the effect that we've got a basic agreement to acquire a book of casualty insurance business associated with the construction industry. As we said in the press release yesterday morning, when we announced the transaction, we're seeing this as a good opportunity to little more than double our existing participation in what -- what is truly a core sector of the American economy. And to probably increase our general insurance net earned premium base by about 10% next year. And of course having some money aside, we're able to, in this fashion, leverage capital commitment in -- in this segment.

We see this obviously as a -- as a very good opportunity to bring on board a group of people who are very knowledgeable about the types of insurance risks in this sector, and people that are cut out of the same cloth as we are, that means they're willing to play and build a business for the long run, and that, of course, is a -- a deeply ingrained part of our underwriting culture at Old Republic. Like the rest of our business, we think that this new addition to our core competencies is probably likely to be affected by cyclical ups and downs, but of course in the bigger scheme of things, we think the totality and the diversity of our base of business in general insurance should attenuate those cyclical effects over time. Cash flow-wise, the general insurance book adds general additions to our invested asset base and those additions and higher fixed yields we're enjoying currently are largely responsible for the double-digit investment income growth we're beginning to experience and have experienced so far this year.

Taking a look at mortgage guaranty, that book of our side of business in the latest quarter, it experienced the first uptick in bottom-line performance in several quarters. Most of the upside this past quarter, as you can see from the brief numbers we show, was driven by a very stable year-over-year claims ratio and by greater yield-driven investment income performance. Our pre-tax income in that business was more affected by the greater investment income than the underwriting service parts of it, but the underwriting service part was up year over year nonetheless.

From a premium income standpoint, this morning's release contains a bunch of statistics as we usually put in, and those are, I think, reasonably explanatory of the sources and trends that affect the mortgage guaranty revenue line. As has been the case for several quarters now, we've experienced some growth in the bulk side of the business, and of course that side as we keep saying is -- is a part of our business where we tend to be very opportunistic, and therefore that doesn't have the stability that we generally experience in the so-called traditional part that business.

But speaking of the traditional part, it has remained under pressure as it has for quite a number of quarters now. And it's been kind of flattish even though persistency in that business has been inching up fairly regularly for quite a number of quarters now. Though small nonetheless, this is the first quarter since the third quarter I believe of 2004 that we've seen an increase in net risk in force. And at this juncture, we just don't expect any significant departure from these trends for the foreseeable future. The key factors that are -- that enter into MI claim reserves and, therefore, the incurred claim ratio that we post, those factors were -- were basically stable or by and large they -- they tended to offset one another so far in -- in 2006.

Year over year, the paid loss ratio was a tad higher. For the nine months this year, it was about 34.3%, whereas last year the first nine months was up -- was around 33.2%. So it's about 100 basis points higher this year. On the other hand, we've been building somewhat higher assumptions relative to claim frequency and severity into our mortgage guaranty reserve structure, but still if we take a look at the rolling four-quarter ratio, let's say, of ending reserves to paid claims for the prior four quarters, the average works out to, according to some figures I've got here, it works out to about 1.48 times for the first nine months of year versus 1.49 times for the same period of 2005.

So far this year, 2005 and prior years' reserves in mortgage guaranty are developing reasonably close to the amounts we posted at year end 2005. So that tells us that the assumptions we've been making in the reserving process are proving themselves quite reliable. And therefore prior year's reserve developments are not affecting current claims incurred results to any significant degree. Like all the other segments, bar none, the mortgage guaranty business produced very good operating cash flows, and this year to date they're up about 38%, one more indicator I think of the stability of the paid loss ratio on the one hand, and the very good cost controls we're able to exercise in that business.

As you saw in the -- in this morning's release, the expense ratio. Even though it was affected by some -- oh, largely nonrecurring costs for example, the stock option expense cost that's downloaded to mortgage guaranty for at least its share of those costs is included this year, whereas it was not included last year, and if you take that into account, the expense ratio in mortgage guaranty is very -- a very stable year over year.

Turning to title segment, the third largest segment in our business from a bottom line standpoint, it continues to be, as long anticipated the -- the weak link in our overall book of business. This latest quarter's performance, it follows pretty much on the same track it's been on for the past 24 months or so. From a -- a historical perspective, however, our year-to-date net operating margin of about -- 2.72% is a little better than the 2.41% margin we experienced in a similar cyclical downturn in the early 1990's. I mention this only to reiterate a point that we've made over time, particularly as it relates to title in that it is the -- the most volatile part of our business, and its profitability should, therefore, be gauged over an entire cycle.

And from that standpoint, the business, I have to say, has been a good return on equity segment for us as it's averaged almost 15% over time. So we're doing in the meantime, given the cycle, the cards we've been dealt in that business, we're doing everything we can to lower its cost profile to accommodate the down draft in revenues. And I'm going to say that we still remain very confident that the business will turn itself around when the current down leg of the cycle reverses course.

As we've said before, our crystal ball, for what it's worth, tells us that a turnaround in title insurance is not likely to occur before the end of 2007 or spring of 2008. So I think we're going to be in the doldrums for a couple -- for a few more quarters before we see some blue skies. That's -- that's the extent of the comments that I was going to make relative to the guts of our business. Old Republic's balance sheet, it remains very sturdy -- balance sheet, it remains very sturdy. The acid based, as you saw in the brief balance sheet we show in the press release crossed, what, the $12 billion mark for the first time this past quarter. And its make-up, trust me, continues to be in its usual pristine state. On the right side, the overall reserves continue to play out quite favorably year over year. And of course the shareholders' equity account is reflecting the type of growth you would expect on the bottom line contribution.

So looking to the remaining quarter before we close the books on 2006, I think the -- the performance trends that you see exhibited by each of our three segments so far this year are likely to continue, and if this turns out to be the case, we think we'll have achieved what we set out to be to do earlier this year. That's the extent of my remarks, and as was indicated before, we'll be happy now to address any questions that some of you may have.

Thank you. And our first question today will be from Mark Ficklestein from Cochran Caronia Waller

How you doing?

Fine. I have a couple of questions. Do you need to reprice the books/what kind of loss ratios is that book currently running at?

I don't have that number. The book is -- has been for quite a number of years a reasonably profitable book of business. As I indicated, the people that we're bringing on board are the people that have worked that book for the past 10 years, since it's been put together. As I also indicated and as we are in that business, in the construction and building contractors business.

We think we know a thing or two about that. We've looked at the book and the way it's priced. We looked at the book the way it's -- it's reserved. And we're satisfied that -- that what we see is what we're getting. And -- and that it should not require any adjustment from an underwriting standpoint other than the ongoing adjustments that you make in our business to react to changing market conditions.

Okay. So I think it's -- what is it, $200 million book, if I'm not mistaken?

$260 million gross before reinsurance sessions, uh-huh.

Okay. And in that $260 million, all of the risks that are in there are pretty much in line with what you would expect to renew. There's no parts that book that you --

Right. Exactly. Right. Yes. So -- it's most of it, as you might expect, is comp, workers comp. And Al and GL, the three typical coverages that you find in the building areas. And as usual, it does not contain any property insurance which, as is not a line in which Old Republic has much interest.

Okay. And then just on the -- on the risk management business, sounds like it is getting a little bit more competitive, down 10% in your book. I guess my question is, are your retention levels on renewals holding up, or are you losing some of the business to pretty competitive bids out there?

Yes. It's breaking even, Mark. We lose a few. And we gain some. And -- and in the final analysis, we're more than holding our own. And on top of that with the economy still being pretty good, our -- our customers' businesses are growing. And of course that's lending some upward tilt to gross premium levels. So by and large, we wish we, write more, but we're reasonably happy what we've got.

Okay. And then just moving on to the -- the mortgage insurance business, obviously a little bit more discussion about kind of credit going into 2007.

Right.

Do you have a view on that, and kind of, how you think your loss ratios will trend?

Uh-huh. Well, I don't think it takes a rocket scientist to figure out that if -- if the employment situation should change significantly in this country, that loss ratio will tend to -- to go up. so there's more going into, slower economy. I think there's more of a chance for the loss ratio to creep up some. Do we believe that we're -- we're looking at a disaster like 70% and 80% loss ratios, I don't think so. But is it -- could the loss ratios, let's say, go up to 50%, 55%? that could happen. I don't believe it will, but it could.

Okay. That's what I have. Thank you.

Yes.

We will go next to Stephan Peterson from Citadel Investment Group.

Good afternoon.

Hi, Stephan.

I just want to follow up on one question that Mark asked. In the press release you talk about certain liabilities that you'll assume in the transaction. Could you provide a little more color. Is it just sort of incidental. Does it go back any significant amount?

Most of the -- you're talking about the reserves and --

Yes, exactly.

And it was -- we did not note it in our press release, but Aon Corporation in its own press release indicated that it was going to transfer some $300 million of reserves to us. And those reserves largely pertain to business that was underwritten in the past three or four years. And I don't have the numbers in front of me, Stephen, but it's roughly about $100 million of UPRr, premium reserves. And a couple hundred million of loss and loss expense reserves.

And most of those loss reserves, loss -- and loss expense reserves would be comp related or --

Well, no. They cut across the board. A lot of them would be comp, but -- that's a big chunk of that business. But they do include some GL and some general liability and some automobile liability, trucking, incidental trucking type of -- of exposures.

Okay. And last quick question, is -- is the book as it's currently sort of constituted, is in a particular geography, or is it pretty spread out nationally?

No, as a matter of fact, that's one of the attractions of it to us, that as our construction business is largely domiciled in the central part of the United States, North To South. And southeast. This book has got more of an east coast and west coast tilt to it, although it's been -- it's being developed in other parts of the country. But the -- there isn't as much overlap from a geographical spread standpoint, and there isn't much overlap from a production spread standpoint, you know. Most of our business currently other than larger counts which are done on a risk management basis through brokers, most of our business is insurance agency, the independent agent business, whereas this book is more of a broker-oriented business. So for all those reason the business fit is a good one.

okay. Terrific. Thank you.

Yes.

We have a question from Greg Peters from Raymond James.

Good afternoon, Al.

Hi, Greg.

You were talking pricing and general insurance. I'm -- outside of risk management. You gave us some indications on where you -- your renewal pricing was. Was there any slippage of terms and conditions as well, or is that pretty much holding firm?

As I said the last time, the last conference call, Greg, in terms of terms and condition, the -- it's really -- there is very little of that. If you want to include reinsurance, let's say facilitated reinsurance placements, there is some insurance taking place. But that's mostly a pricing as opposed to a terms and condition issue. So the answer to your question is no.

Okay. Fair enough. And then back to the acquisition, I know you didn't really know about the loss ratios or didn't have those figures in front of you. But certainly you had an understanding of the combined ratio results.

Yes.

And we're talking about adding 10% to your top line next year. And, as we -- as we from the outside observation standpoint that we're at try and model out combined ratios, I guess we want -- would like to know whether the -- the combined ratios, if this is going to have because it's longer tailed, going to have a dampening effect on the combined ratio. But upper pressure or -- outward pressure or do you think it's consistent with I think through the nine months you were producing a composite ratio of 90.3. Is it producing that type of result, or, higher, lower, what -- just looking for some color, guidance there, Al.

Yes. I will say to you that we would be surprised if the business next year does not produce a combined between 90 and 95.

Okay. And that's --

I mean, it's been written, and it's still being written in a reasonably good market.

Absolutely.

And therefore, that's -- that should give us new -- everybody, pretty good comfort level that the business is -- is going to be a reasonably good piece of business.

And with the transfer reserves, I imagine there's going to be a pickup of investment income from day one?

Sure.

Yes.

Yes.

And was there any -- any goodwill associated with the acquisition that you -- you put on the books?

Well, Aon, again, in this press release, indicated that we -- we're paying $85 million for the renewal rights. And everything else. So, some agencies that we're picking up and so forth. So I -- I would imagine that -- I don't have the final numbers of it, that a chunk of that, maybe half of it or something like that might be good will, which is not going to be a big deal for us.

Okay. And is there anything unique -- in the press release you said it's aligned as a joint venture or something to that effect. Is there going to be a minority interest loan that's going to appear on your income statement that we have to to appear on your income statement that we have to factor in? And what percentage is the minority interest, etc.?

I cannot give you the percentage, but there will be a north interest.

Okay. Will the -- the results -- your majority, will this -- this will be consolidated and reported through your general insurance --

Absolutely --

Statistics, however, there will just be a minority takeaways?

That's right. Let me put it this way, in the con tech of our general insurance line and in the context of national, that number is not going to be a significant number for you to be concerned about.

That's a great answer.

Okay.

Perfect. Thank you very much for your answers.

And we will go next to Kelly Nash from KeyBanc Capital Markets.

Hi, Kelly.

Good afternoon, Al. I wonder if you could just start with the claims severity that you're seeing in general insurance. Are you seeing any changes there in terms of loss cost trends?

We have some. And -- and I'm -- I'm hesitant to say that, we see the beginnings of a -- of a real problem. We had the -- quite a number of fatalities in our trucking business this past quarter or so. And that obviously has got a -- a bad habit of jacking up your average reserves. So we have some of that, but as I say, I'm hesitant to say that we have the -- the beginnings of a severity issue to deal with in general insurance.

Okay. And then just following up on that in terms of pricing within the trucking, the auto side of things, can you just specifically comment on the competitive aspect there of what you're seeing in terms of pricing.

Well, it's been getting more and more slippery. But, we -- we count our blessings that we've got a nice, stable book of business, that we've got a good agency plant in place, that we've got customers who are generally appreciative of the -- of the service that we provide in -- in the trucking area that you're referring to. Our retention rates are very good. So so far, so good. I mean, without question there is more competition, but we're able to navigate the straits so far.

Okay. Turning to the mortgage guaranty side of things, are you seeing anything different in terms of the regional concentration of the claims? I know previously you touched on the midwest and the southeast as areas.

Right. Those continue to be the -- the biggest, claim issue type of locales in the business. And of course it's related to particularly in the midwest, Michigan's and Ohio and states like that. It's obviously related to the employment situation in certain industries such as the automobile manufacturing and related industries.

Okay. And assuming, if we see unemployment trends stay relatively stable, at this point, would you expect that the claims ratio somewhat stabilizes, as well?

Well, as I said to an earlier -- as -- an earlier question, Kelly, we don't see it happening. But is it -- is it conceivable that it could claim ratio could go from its current 45% or so to 50% or maybe 55% over time? No, it's not inconceivable, but I just don't think it will happen.

Okay. And then finally, just turning into the -- the -- over to the title segment, were you surprised at the downside pressure on the premiums?

Some degree, yes. We're prosecutor surprised at our inability to cut costs perhaps a little more severely than we have been able to. That's -- that's been a -- a source of some anxiety. But I -- I am convinced that we're doing the best we can, and -- and we're just going to have to see it through.

We've probably seen the worst. I mean, there are pundits out there, and economists and so forth that -- that say that housing is going to get a lot worse, you know people are pulling homes off the market and so forth. And that's probably going to have, create some more downward pressure on the top line. But I don't think that the business turns itself into a loss proposition.

Okay. And is there still room left on your cost-cutting abilities?

There's some. It's been a source some anxiety for us. But there's a little bit left. But it's not going to be enough to turn the thing around. I don't think it's going to be enough for anybody. I think if you look at the other title insurers, everybody is -- is experiencing reasonably severe downdraft. And it's going to be that way.

I mean, we're resigned to the idea that it's going to be that way until year end '07 or thereabouts. It's just one of those cyclical events that you live with. And that's why I made the comment earlier -- during my remarks that to the effect that you have to look at that business over the long term. And over the long term, it's been a reasonably good business. I mean, it's been, as I say, 14.5%, 15% post tax return on equity. And that's damn good in the insurance industry.

Yes.

But again, we've had to, suffer through some downturns, and in order to enjoy the upturns that have been -- that have produced excellent results.

Okay. And then just finally, are you seeing any impact from the -- the negative I guess you could say things going on in the title industry in California, Colorado? Any impact on your business there even though, obviously you weren't involved as the company?

No. I think, most competitors are -- are much more aware of good business practices, and we sense that they're trying to do the right thing, but it's not having an impact in terms of our competitive position. It's not improving it for us, nor is it taking away from it.

Thanks, Al.

And we have a question from Kevin Preloger from Perkins Wolf.

Kevin, how are you?

Pretty good. Yourself?

Good thank you.

Following up on Kelly's question, listening to the truckers they're saying how tough it is right now to find drivers to fill the seats. I'm wondering if that marginal driver they're getting is somewhat more mediocre than everybody else out there. I know you said severity picked up a little bit. Any changes in frequency?

A little bit. It's mostly -- I would say it's mostly a entirety issue that we're dealing with so far. But it stands to reason also, dealing with so far. But it stands to reason also, Kevin, it happens in every cycle that when you reach the heights, then people are scratching, companies are scratching the bottom of the barrel in order to find drivers. And you've had a long-term issue in the trucking business in terms of, quality of life issues becoming paramount in the minds of many people. And, of course, that makes the availability of particularly good drivers, much more difficult to achieve. Or to reach. So I think there is some of that, but the last time we went through a real heated economy, back in the 1990's, mid 1990's or so and we had the same issues to deal with, I just don't sense that we're facing the same type of problem right now when it comes to that particular matter.

And you're still getting the rate to go along with that?

And we're still getting nice rates. I mean, this little bit of slippage here and there. But by and large we're getting the price that we think we need for the business.

Okay. And another topic I know you've -- you always have an opinion on what's going on in the reinsurance market. Any changes there that you're seeing?

Well, good quality reinsurance remain at a premium. And -- and that to some degree because we're particularly oriented to do business with the, the solid reinsurance companies, that creates a problem for us at times. To fill, all of our reinsurance needs. But by and large, we're -- we're able to do okay. We're able to -- to place all the reinsurance we want with the companies that we feel comfortable with.

I think the -- I sense that given the lack of -- of major hurricane losses this time around, that it probably -- the reinsurance market is probably going to get a little more aggressive now that capitals -- capital structures have been replenished. But that's, again, I think going to be more of the case in the property side of the equation than it is the liability side. We don't expect any significant declines from quality players in the rates that they're quoting on reinsurance assumptions.

Okay. Thanks a lot.

And we have a question from Bill Laemmel from Divine Capital Markets.

Hi, Bill.

You're surviving well.

Trying to, huh?

About the $260 million in premiums, from the construction business, how -- how has written running this year?

Well, the $260 million that we quoted is the current annual run rate for direct premium volume, and of course that's before, as I indicated before, I think to Stephan's question, That's before reinsurance seeded for excess of loss or what have you.

Right. No, I just wondered how written was running this year.

Yes, that's the level. It's running about --

No, no, sorry --

It's running a tad, maybe -- let's see, 260 -- I would say it's running about 5% higher than it was last year.

Okay. Well now, how about your regular book? Because I noticed that you're chugging along with the premiums earned here about 8%. How is the written going there?

Well, the earned premiums for us in numbers this morning, Bill, are about a little shy of 6% year to date.

The written premiums?

The earned premiums --

Earned premiums, okay.

The earned premiums, whether it's direct or net for us, we've been shy about quoting those numbers at least on a quarterly basis because of the annualization concept that we have to deal with. It's been playing havoc with trends, and -- and the final analysis, it doesn't mean very much. But on an annual basis, you see the numbers in our 10-K, and I would say that this year's, direct written volume will probably reflect the same kind of rate of growth as the net earned premium that you see in the statements that we publish.

Oh, okay. And between now and the end of the year is when you usually pick up the most, right? So you are really having a pretty good year writing business.

Yes, but I still think most of our business, whether it's trucking or the gas and oil, the contractors business, pretty much, renews steadily throughout the year, Bill.

Right.

So that's why I said after nine months and being at around 6% growth, we'll probably end up the year at the low side, which is 6%, of what we expected we would do for the whole year, which is, again, to repeat myself, was between 6% and 9%.

Okay. So my magic number is six?

Well, so far, that's what it is.

Okay.

And I think it's realistic to expect that without giving you a guarantee.

Yes. And thank you very much.

Yes, sir.

And we will go flex to Jeff Dunn from KBW

Hi, Jeff.

Good afternoon. Actually it's Nat Otis.

Oh, it's Nat Otis.

Two quick questions. I would like color on where trends have been in the country, maybe weakness in the west coast and such. Any comments this quarter?

Yes. And I think we mentioned most of our difficulties whether they're top line or bottom line oriented stem from the western states, California, Washington, Oregon, Arizona, etc., Nevada. Those are the problem children. And what accentuates the issue of -- for us as well as -- as other major title companies with operations out there and all of them have them is that most of the business in the west is conducted on a direct basis, through our own storefronts as opposed to through independent agency channels, so therefore the management of the cost structure is a lot more difficult. And -- and that's the reason why it's that part of the business from both a revenue and bottom line standpoint that's creating the biggest -- the highest level of acid indigestion for us.

All right. And the second question is more a number question. Have -- I apologize if you already said it on the call -- given any paid loss ratio guidance for the general insurance, not guidance, but any color on the quarter for paid loss guidance -- ratio in the general insurance

I did not give any, but I can tell you that there's been very little change. And I will give you the numbers since everybody's getting it on this call. It was -- our paid loss ratio for nine months of '05 was 51.2%, and our paid loss ratio for nine months '06, for general insurance, also was 50.7%. So it's reasonably level. And I indicated on mortgage guarantee that it was $37.5% last year -- it was 37.5% last year, no 33.2% for nine months and this year it's 34.3, basically flat. And title, nine months last year was 4.7%, and this year it's 5.1%.

Okay --

Overall, 34.4%, and 35.3%. As level as they come.

Great. Very helpful. Thank you, Al.

Yes, sir.

[OPERATOR INSTRUCTIONS]. We have a followup from Greg Peter was Raymond James.

Okay, Al.

Yes, Greg?

Since you're so expansive on the paid loss data, maybe you can take a bite at the prior-year reserve release impact in the third quarter '06 versus third quarter '05.

As I've said and as I believe I said in my remarks, it's trending the same. If you look at our numbers over time, Greg, it's a 2%, 1.5%, 2%. It varies some quarter to quarter, and that's one of the reason we don't like to talk about it on the quarterly basis, because they bounce around for no reason. But year over year, which is the minimal period that anybody that knows anything about this business should be looking at, it's trending the same as you see in the 10-K for last year.

Okay. And then I -- I was going through the press release on the acquisition. Sorry to -- to circle back on this because I'm sure you think we've covered most issues here. But it said closing sometime in the fourth quarter, do you anticipate -- I'm trying to, from modeling purposes construct an outlook here. Is it beginning of the fourth quarter, or are you going to try and time this with the closing of the books?

No, it's probably going to be -- I mean, it has nothing to do with attempting to do it with the closing of the books. It just has to do with, getting all of the regulatory approvals, blah, blah, blah, and our gut tells us that, between November and December the transaction will close so that if I not the thrust of your -- of your inquiry, you should be assuming that we're not going to get any writings or premiums until the January of next year.

Perfect. And that's exactly what I was looking for. And then finally, Al, this is the -- this is -- I don't want to say a major transaction, but it's certainly a nice-sized transaction for the Company. And it comes at an unusual time considering all of the properties that had been available over the course of the last several years. I think you may have done one renewal rights transaction several -- a couple years ago.

But I'm wondering whether this reflects a change in your appetite or a change in your view of the properties that are available for sale, if you have any plans to be more active on the M & A side considering Old Republic's very conservative and substantial balance sheet, and I'm just wondering what you're seeing out in the marketplace. Is there increased deal flow. Some perspective there would be helpful.

Well, there are always deals around. And as we've said repeatedly over the years, and I -- I know you know this, Greg, we never stop looking. The reason we haven't done very much is because most of what's been available has been in the form of, of entire corporations, whereas what we've wanted to do and we're no different than most in many regards has been to buy books of business. And this is one book of business that, came along, and -- and that, fitted what we are about in terms of being focused and -- and having we'll around to play for the long term, etc.

Is there -- does that mean that if there's a change in our appetite? No. I mean, we have an appetite to do more. But it's got to be the right more. It's got to be something that fits our strategy. Something that fits our -- or choice, the -- our choice of people. I mean, we -- we tend as you know to be very picky about who the heck we do business with. And when -- so when the moon and the stars are properly lined up, you'll see us jump.

Okay.

Okay?

Okay, thank you very much for the answers.

Okay.

And that does conclude our question-and-answer session. I would like to turn the call back over to Al Zucaro for any additional or closing remarks.

No, I don't have anything else. I appreciate all the -- the questions that were raised, and the interest shown by your -- your attendance in this conference call. And we'll look forward to visiting with you I guess early 2007 now at the end of the -- of the fourth quarter. Okay? And that's it. And I -- I bid you a good afternoon.

That does conclude today's conference call. Thank you for your participation. You may now disconnect.