Old Republic International Corp (ORI) 2009 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Old Republic International third quarter 2009 earnings conference call. One note that 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. I would like to remind everyone that once again, today's call is being recorded. And now I'd like to turn the conference over to Leslie Loyet of the Financial Relations Board. Please go ahead. afternoon, ladies and gentlemen.

Thank you. Good morning and thank you all for joining us today for Old Republic's conference call to discuss third quarter 2009 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 online who did not receive a copy you may access it at Old Republic's website at www.oldrepublic.com or you can call Liz [Dolozol] at 312-640-6771 and she will send you a copy immediately. Please be advised that this call may involve forward-looking statements as discussed in the press release dated October 22, 2009. Risks associated with these statements can be found in the Company's latest SEC filings. At this time, I'd like to turn the call over to Mr. Al Zucaro, Chairman and Chief Executive Officer, for his opening comments. Please go ahead.

Thank you, and thank you everyone for joining us as usual. We're not going to bother repeating what's already said in the press release this morning, so we'll just, as we usually do, embroider a bit on what we think are the important issues or trends that affect our business and then turn the meeting to the questions you may still have. As we've done in quite a number of quarters now, we've got Chris Nard, who is the CEO of our Mortgage Guarantee Companies, and he will participate with me in the Q-&-A portion of the call. We'll start with the largest segment at Old Republic, which is our general Insurance business. And the best way to characterize what's happening here is that we're just about holding our own and that the premiums and the claims and the capital retention trends are generally continuing as we have expected them since the beginning of the year.

New business is still very hard to come by in most of the markets in which we operate. Competition is fierce, I would say, pretty much across-the-board. As we see it there is still some competitors out there who seem to be hell bent on gaining market share at a time when commercial insurance rates remain under quite a bit of pressure, and recessionary conditions are driving down the employment as well as the sales bases on which many premium charges are predicated. So from a new business standpoint, we continue to have a tough time. From a renewal standpoint, however, we're still retaining very much north of 80% of what we want to renew.But volume here also is nonetheless down for the same rate and economy-driven reasons that I just mentioned relative to new business. So in total, we're not optimistic about growing our general insurance top line to a significant degree in the foreseeable future. The best way to characterize our market perspective, I would say, as well as our underwriting stance at this point is that we are in fact playing the fence.

As we've been pointing out for a number of quarters now, the Consumer Credit Indemnity, or CCI in short, line of business which we write in our general insurance business is the only significant piece of general insurance that's running a fever from a claim ratio standpoint. At the same time, the CCI premium volume is declining as we're not writing any new business to speak of since lenders are not making new home improvement or equity loans that would require or lend themselves to the type of coverage that we'd currently be willing to provide. As we said in prior quarters, trends, underwriting trends, for the CCI coverage are -- and the loss ratios trends in particular are affected by the same cyclical and recessionary conditions that have afflicted our mortgage guarantee line. So our current expectations continue to be that both coverages, whether it's CCI or mortgage guarantee, will not begin to get any kind of reprieve before, say, mid-year 2010 at the earliest.

Expense-wise, as you can see in the stats in the press release, the general insurance segment is currently operating within a range of 25% to 26% expense ratio that's measured against earned premiums. And this is about 10% more, as I look at these numbers, 10% more than the 23% to 24% we shoot at and generally achieve fairly regularly when the business is firing on all cylinders. Nonetheless, we do think that the current range of expenses to run our general insurance business is quite acceptable to us at this stage of the cycle, but certainly does not have the makings for any expense reductions that we can see. As we have pointed out in the earnings release, again if the impact of the CCI coverage is taken out of the overall general insurance line, the remaining 95% or thereabouts of the business is registering about a 95% to 96% composite ratio.

That's this year versus about 91% or thereabouts for the same periods of 2008 without the CCI coverage. And while the ratio is higher by roughly 500 basis points as you can see this year, we're comfortable with this kind of performance at this late stage of the down cycle for commercial lines insurance. And I think this is particularly so since prior [year's] reserves continue to hold up well and are therefore not infringing to any degree on the current year's underwriting account. Even though -- and I might say here by the way that our general insurance reserves through nine months are penciling out about a 2% or so positive reserve development so that's about in line with what we typically have been experiencing for quite a number of years now. Even though general insurance premium volume is down by almost what, 11% so far this year, the operating cash flow of the business is still running very positively through nine months and compares reasonably well with what we would expect at this time of the year.

Let's see, looking ahead a bit, we're not expecting a quick fix in commercial lines. We've not expected one for quite a while now. Pricing remains under pressure. There seems to be a perception that there's enough capital in this part of the industry and, as in past cycles, there appears to be the usual pressure on some companies to put that capital to work even though doing so is at prices that are below desirable rates, or at least that's the way we see it. Our own general insurance business capital structure, capital account, is up about 4% year-to-date and we think that this is more than enough to accommodate the existing balance sheet leverage as well as to provide sufficient firepower if you will, for future underwriting -- undertakings.

Maybe say a few words about mortgage guarantee business. In the latest quarter the results are we think. pretty much in sync with the production and bottom line trends of the past 24 months or so. Claim costs are still rising, but we think they're in line with industry-wide foreclosure trends. And they continue to reflect, in our case and we suspect on a mortgage guarantee industry-wide basis, they continue to reflect greater levels of policy cancellations or [recisions] as we call them in the industry. And these recisions relate to both previously and newly reported claims and they're having a positive impact on our quarterly claim reserve provisions as well as the development of prior year's reserves for this line.

As most everyone knows, there are a number of government and private sector efforts at play which involve various types of partial loan forgiveness or loan modification initiatives [excuse me, my throat is going on me]. And these various modifications, as I was saying, are taking the form of various initiatives such as the so-called Home Affordable Modification Program and the refinancing of loans through the FHA, which has been taking place now for a good 18 months as I recall. All of this is intended to reduce and ultimately reverse the impact of foreclosures on the housing and mortgage lending industries. From our perspective, it's always difficult to assess the direct benefit of these strategies on our claim costs to date, though we are quite confident that they have been a very positive factor. Nevertheless, we're also reasonably sure that it's going to take much longer than anyone would like to get out of the mess that took some 12 years or so in the making. So, we continue to think and believe that our mortgage guarantee business is likely to produce underwriting losses well into 2010 before the proverbial light appears at the end of the tunnel. And in the meantime, new premium production in this segment is likely to be lethargic for the foreseeable future since we expect underwriting standards to remain pretty tight among mortgage guarantee participants as well as the lending and credit enhancement institutions that deal in these markets.

Capital-wise in the mortgage guarantee business, we think we're in pretty good shape for the three-Company group of mortgage insurers that we have at Old Republic. And while as you can see, particularly if you have access to some of our prior earnings releases, while the regulatory risk-to-capital ratio which we report each quarter has been rising fairly steadily over the last 27 months, as you see in this morning's release it remains under the 25:1 order mark and that's some of the states mandate. I think there are 16 states, if I'm not mistaken, that have an actual mandate relative to the maximum risk to capital ratio that a mortgage guarantee insurer must have. But when we take these particular factors in our case into account, we're managing the line with what we think is a reasonably well founded expectation that individual states, including our key domiciliary state of North Carolina, will permit us as well as other mortgage guarantee companies to cross that watermark and thus leverage the balance sheet to a greater extent than is usually the case in more normal times.

I might also note that our mortgage guarantee organizational structure at Old Republic has got quite a bit of flexibility built into it to at once enable some reallocation of underwriting exposures within the system and still enable us to be compliant with regulatory requirements if capital constraints should arise in the future. So, the long and the short of this is that we continue to manage this segment with an eye peeled primarily on having enough money in reserves and in our capital account to meet both the obligations we've already accumulated and those we're adding quarter to quarter as we move through the cycle. The last time we saw fit to raise capital, to raise the capital committment to mortgage guarantee was as of year-end 2008. And so far, as I say, with the risk to capital ratio remaining well below the watermark as I mentioned before of 25:1, we have seen -- we have not seen fit nor have we seen a necessity of adding to that capital base. Looking quickly to our title business, as you can see it finally seems to be re-emerging into a positive bottom line territory. As we've pointed out in the release this morning, the engine that's driving this change is the top line which was initially, at least at the beginning of the year, first couple quarters of the year, driven mostly by our direct distribution system. But now, in the third quarter and going forward, will be driven by both our direct and the much larger independent agency production facilities we have in place.

Those of you that follow this insurance niche, know that there has been a significant amount of market dislocation in the past 18 months or so, with some companies going out of business and others engaging in further industry consolidation, all of which usually creates pockets of market share opportunities for the non-consolidators. And in this atmosphere, we have found ourselves perfectly positioned with the combination of sufficient capital with what we honestly believe is a very good Old Republic brand name in the business and with more than our share of intellectual capital to take advantage of these opportunities. Now that's not to say that the segment is going to draw a straight line up the revenue and earnings scale from this point forward, but we do mean to propose that we probably reached the bottom of the title cycle sometime around the mid-year this year. Big picture-wise, the Old Republic consolidated shareholders account broke out, you might say, of a two year down trend in the second quarter, and it continued to do so and to appreciate in a nice way in the most recent quarter.

As you can see in the equity account reconciliation on Page 5 of our press release, substantially all of the increase has been generated by much higher market valuations for our securities portfolio as well as from the residual deferred income tax benefits that we were -- have been finally able to book in the second quarter and now third quarter of this year. And those are tax benefits that we had not been permitted to take earlier because of the application of various accounting regulations. Consolidated assets are up about $1 billion, as you can see, between year-end 2008 and September of this year. And most of this increase comes from the combination of positive operating cash flow from -- some of it, [$200 million] comes from the May capital raise that we did of about $316 million and most significantly, obviously, from the increase in the market valuation of our bond and stock portfolio that I just mentioned.

On the right side of the balance sheet, the consolidated claim reserve line continues to develop favorably. And the greater recision activity that we're being advantaged by in the mortgage guarantee line is having a greater impact on year-over-year development trends. In most years, both in our general insurance business as well as in the totality of all of our lines, we typically experience a 2% to 3% favorable development of the prior year-end reserves. And this year we may be somewhat above that and again, that would be due principally, if the current trends continue through the year-end, that would be due principally to the more favorable mortgage guarantee, favorable input that we're getting. So as usual, I'm looking at my notes here, and I think that's the extent of the comments I wanted to make. And as we indicated at the beginning of this discussion, we'll now turn to the questions that some of you may have.

Thank you. (Operator Instructions). We'll go first to [Mike Grohdahl] with Northland Securities.

Yes, hello.

Hi, Mike.

Hi, Al. Could you give us a sense of the growth in fraud recisions and modifications from 2Q 3Q just so we can get some sense of the order of magnitude?

Chris, why don't you take that?

Sure. There were two questions in there. There was the recisions and the modifications. Recision activity was up quarter-to-quarter simply as a result of the higher risk loans that are more subject to having misrepresentation in them. We never refer to fraud, but it's misrepresentation moving through the delinquency pipeline. The modifications, predominantly what we're all referring to these days are the [HAMP] modifications. Those have started to make some dramatic increases up as the programs really start to get off the ground. Now those have two pieces that I think you all know about, which is one, the initial modification. Then the borrower has to go through a period where they produce the documentation to finalize the modification and then they have to make three consecutive payments before the [MOD] becomes official. So we would expect to see those continue to increase, although the ultimate performance of those really won't be seen until likely six months after the initial MOD has been performed. But again, that is a positive on the horizon.

Chris, could you give us some sense, though, of the magnitude? I mean was the increase 20% in recisions or something more tangible than a high level comment?

I don't have it right in front of me, but it was not dramatic. It was an increase that you would anticipate as the high risk books particularly in 2006 and 2007 kind of aged through the pipeline.

I think we can say, Chris correct me if I'm wrong, I think we can say that we had a greater benefit, if you will, from the recisions in the first half of this year than we did in the third quarter standing alone. Is that right?

Yes. It's a small change. It was not a dramatic change either way.

Okay, great. I'll get back in the queue.

Next we'll hear from Matthew [Gothsinger] with [Fiduciary].

Hi thanks for taking the question. I'm just looking at the 214% claims ratio in MI and I guess I'm a little bit reluctant to kind of view it as in line with the overall trend as you said Al. And I guess I say that within the context of it's the highest since the fourth quarter of last year.

Yes. Well, again, Matt, we have to repeat what we have said innumerable times over the years, that we don't really pay that much attention on quarter-to-quarter, a quarter doesn't make a year. And I have to say that our initial expectations of a year-and-a-half ago, was that come the end of 2009 we should get some down trend in the loss ratio, and as I think I indicated at the beginning of this year, we have postponed that to some time in 2010. So from that standpoint the fact that it is at 214 now, yes, it's a little higher but we don't see that being as a humongous difference when you compare the results year-to-date with what we had through last year.

Maybe asked a little bit differently, how do you look at the overall trend in delinquency rates relative to some of the things that the press is publishing in terms of the inventory overhang and the decline in cure rates, things like that in terms of trying to get a sense of when we're going to peak here in MI and the claims ratio and kind of the magnitude of further increases?

Well Chris we were talking this morning about this among other things. Why don't you take it up?

Sure. There was a bunch of information in your question there. I think the one piece at the end is the delinquency or the foreclosure overhang that you mentioned. What we've seen there, is we've seen good movements in the market through the last period in reducing the existing inventory, I think it's down to something like 8.5 months, which is a good move down from where we started and obviously having its positive impact on home price appreciation trends. The thing that most people worry about is what they call the shadow inventory, which is the foreclosures that are kind of backing up either in the court systems and states that have judicial foreclosure proceedings or are in the moratorium phase and have backed [up] the [servicers] as the moratoriums have been in place and as people start to work through these modifications. It's difficult to determine when that shadow inventory will hit but I think we are of the belief that it doesn't happen all at once. And again these states where you have to move through the court system through foreclosures, while they're in moratoriums right now I don't think those states have gone out and doubled or tripled the number of judges in the state. So I think as those things move through, it will come out in a normal tickle as opposed to the dam breaking all at once. So hopefully that occurs as this economy stabilizes and it gets absorbed a little better than in the last year or so. So, I'm sorry --

I'm sorry. Go ahead Chris.

No, go ahead. Were you going to ask a question?

I was just going to clarify, if indeed the shadow inventory, those delinquent loans, that would indeed be reflected in your delinquency number there?

Yes, those were in the delinquency population today. And they predominantly back up in what we would call a Status III, which is a pre-foreclosure status. And you can see those in the numbers for the industry just starting to build there.

Just lastly, on the general insurance business, I wondered if for someone that's not quite as familiar with the CCI line if you could just kind of review exactly what that type of product is guaranteeing or wrapping and the type of maybe the duration that you expect to be associated with that type of business?

Well the product, as we've said many times in the past, is something that is a product we've under written since the 1950s. And it insures pools of loans. Originally it was exclusively home improvement loans, but as time wore on, the product line was expanded to include home equity loans, lines of credit and so fourth and so on and some seconds obviously right to the first mortgage. So by definition, it is a consumer product which is very much in line. It has some of the same features as the mortgage guarantee line today in terms of the economic cycle in which it operates. To differentiate, though, the product is differentiated from the standpoint that it's written on a policy-year basis, meaning that each policy year stands on its own. And quite a bit of the product is retrograded, meaning that there's a swing rate that applies to it so that depending one any one lending institution's experience with its own pool of loans, the premium rate can go up or down depending on that loss ratio and the ranges of acceptable loss ratios are agreed upon at the beginning of the policy term.

It's wrapping a pool of --

Well either, yes, well not mortgages necessarily as I say, but seconds and home improvement loans, any kind of consumer loans pretty much, not credit card loans or anything like that. And finally, there is a cap on each year's total maximum claims that can be paid, and typically that cap is 10%. So the moment you reach 10% of whatever you're insured, you're off the risk. But in between, that's a big swing. You can have some great variability. To give you an idea, in the worst of times before this current recession, the businesses produce normally an 80% or 85% loss ratio. Today, at its peak, we are looking at over 150% so it's at least two times worse than we've ever experienced in that business, and that's what's driving the loss ratio in the general insurance area. Now the business currently accounts for about 5% of our general insurance earned premium base. And as you might well imagine, the business is declining in terms of the amount of risk in force and therefore the amount of premiums that we're collecting because we're not writing any new business to speak of since as I indicated before. First of all, there's very little lending in this area being done and secondly, whatever lending there is would not necessarily be acceptable to us from an underwriting standpoint given the changes in underwriting standards we've adopted.

Is that 150% loss ratio, is that consistent with maxing out the 10% cap on each policy year then?

No. It could go a little bit higher, although we sense that this seems to be just a little bit of a decline in the number of claims that are being reported. But you have the same issues with that business as we have with the mortgage guarantee business in terms of recisions and so forth. You have some of the same factors that tend to attenuate the loss ratio on it.

Okay, thanks for taking the questions.

Yes, sir.

(Operator Instructions). From Wunderlich Securities, Beth Malone.

Thank you, good afternoon.

Hi.

Hi. I just wanted to ask a couple questions here. On the mortgage insurance market, do you anticipate that there will be any changes from the GSCs on what kind of attachment they will have for loan to value? In talking to some of the representatives of Fannie Mae and Freddie Mac they're talking about only accepting mortgage insurance on 80% or more instead of lower than that and reducing the demand for mortgage insurance by the GSCs. Have you heard anything about that?

Chris, do you want to address that?

Yes, Beth, you mentioned only -- today only they require mortgage insurance on LTVs over 80%, so that wouldn't be a change. I think you might be referring to a discussion about buying less coverage.

Right. That's what I mean.

That option has always been out there in the GSE guides. It's always been a small amount of the production that we do. We haven't seen any significant change to date.

And then you took some reinsurance, you kind of commuted I guess some reinsurance agreements in the mortgage insurance book. Is that what we should anticipate going forward? Is that a natural expectation of a market condition like this? And do you view that generally as a positive trend?

Well in the last year or so, correct me if I'm wrong Chris, we've done a few of those and we mentioned it in this release because we had done a couple of larger ones which involved a larger amount of money as we indicated in the release. I think the answer to your question, Beth, is that it's going to depend on the needs and the strategies that are being followed by our lending customers. Some of them want to get out and liquify their captive insurance companies from the standpoint of whatever excess capital they may have in it and cash in and let the business run off in our hands as opposed to their keeping the run-off. Others may want to just not have anything to do with that line since it is typically a small, very small piece of their business and they would rather be paying attention to the other matters that are of more pressing interest to them. That's what I can think of. Chris, can you add to that?

No, I would just echo. It's individual customer by customer and whether they continue to maintain an appetite for mortgage credit risk or they feel it's time to move on to more traditional activities for them.

Is it driven also by their financial need? When these banks or lenders --

No, I think it's more -- I can't speak for the bank but it generally feels like it's more strategy driven than economic nature.

Just a couple more questions. On the title business, one of your competitors that has recently released results indicated that they, due to some changes in court decisions affecting title, they released some loss reserves. And I was wondering, are those factors that are affecting the entire industry or -- Have you seen that same trend for your title business, and could we anticipate that reserve development would be favorable as a consequence?

Well first of all, Beth, I'm not familiar with that particular release from a competitor that you're talking about nor am I remembering anything right now about any changes in laws or anything that would affect claims, but -- So I can only speak to our own interests and what we have seen for the past year-and-a-half or two is a gradual increase in reported claims and number of claim payments and so forth. And if you track our loss ratio during that same period, a year-and-a-half or so, you'll see it's been creeping up and that we have been reacting to what was happening. Now of course as you know, reserving in an insurance company, any insurance company, is a process of looking through the rear view mirror and expecting that what you see in the back is going to be able to see through the windshield. But to the extent that our view of what has happened is going to repeat itself, we don't see any basis for suggesting that our reserve levels are too high right now.

One last question on the recisions. Do you anticipate that the number or the size of recisions will accelerate as we move through the mortgage cycle here -- I guess as claims increase, is the percentage of recisions, are they expected to rise? Or how do you look at that?

Well I think you're asking a question similar to one that was raised just before so I'll turn it over again to Chris to address.

Yes, Beth, I think what you'll see, as we've talked in the past, the books that have created a loss of stress are what I call the late 2005 book through the early 2008 book, first quarter predominantly. And as those books age, they will be the predominant generators of the recision activity. So I think, while I couldn't tell you a date, I think you'll see it continue to increase until that late 2005 -- or until the late 2007/early 2008 book has moved through the cycle. And then you'll see it start to decline as the delinquencies become more representative of the business originated after the first quarter of 2008. And I think in that instance you'll see a return to more normalized low levels of recisions.

And have you seen many lenders push back when you have offered a recision? Have they argued with this decision or are they accepting?

Yes, the way it occurs as we investigate -- we have a third party investigate and we have it reviewed by third parties and then it goes back to the lender. And there is always a long period of dialogue to make sure the facts are straight, the information is [square], so there is a lot of dialogue and debate in the process.

So the lag time is about, would you say about a year between the time of the claim and when it's finally decided?

It could be up to that amount of time.

Okay, well thank you.

Sure.

(Operator Instructions). Bill Clark from KBW has our next question.

Good afternoon Al.

Hi.

Could you share the percent of revenues in the title business that was agent-related in the quarter? I know you usually provide that in the Q, but I think it would be helpful if we could --

I don't have it right now in front of me. You're correct. Let me just take a look at something here.

It had been running this year somewhere around 57%.

Yes, right. It should not change significantly. As the year wears on, I think you're going to see a little bit of an uptick in the -- my gut is that you're going to see a little bit of an uptick in the agency side because of the lag effect that usually occurs relative to that business. No, again, as I say , I don't have it in front of me but

You think it was maybe another small increase?

Yes. Right

And the second question the pay boss ratio in mortgage insurance business seemed like it dipped down quite a bit this quarter. Was that related to the captive --

Right. We tried to do our darndest to explain why that was occurring. And if you look at the paragraph, I'm pretty sure -- it's the paragraph just above the table that includes the makeup of our incurred loss ratio and mortgage guarantee. If you'll see there, it says -- as matter of fact it's the last sentence above that table. It says the recording of the above noted reinsurance recapture had the effect of decreasing the paid claims ratio by 49.3% in the third quarter. So what you would do, is you add 49% to the 57.8% and you take 49% away from the 156% claim provision. That's the mechanics of those entries that we make when we book these types of reinsurances.

Okay, great.

So the loss ratio does not change. It's just the components of it and just the effect on paid loss ratio and reserves.

Great. That's all I had, thank you.

And next we'll hear from Richard Lane, Broadview Advisors.

Good afternoon guys.

Yes.

A couple of questions. On the CCI business, I take it those pools of loans that you're insuring [all get] securitized?

Oh, no, Oh, no. I don't know if it's -- it's less than 50%, particularly of the loans that we insured in that 2006-2007 period. I'm pretty sure that it's less than 50% of all the loans. The majority is our portfolio loans.

So would these be other insurance companies for their own portfolio? Or who is the buyer?

Well, no. By portfolio I mean that the loans would be kept on the lending banking institution's books.

Yes. Okay, so the originator is buying the --

Well is keeping, typically keeping the loans on its books, right.

Who else do you compete with in that business?

Well, until recently, and I think they are, from what we can tell, they're fundamentally out of the business. United Guarantee was in that business, a subsidiary of AIG. And there was another small, a couple of smaller competitors that were in the business. But for the longest time most of that business was written by Old Republic and United Guarantee, as I say.

And are there a couple originators, obviously you're not going to name them, but stand out as having been particularly poor underwriters that you just kind of work your way through much like maybe a bad vintage year?

Well I think the latter is certainly a true fact and in terms of bad originators, I think you and anybody else that follows the business would know that some companies have had worse experience than others. If you want to call that a bad originator then that's what it is.

Do recisions and/or fraud enter into this business as it does in the MI business?

Yes, well, recisions for again, the same type of issues that Chris addressed before, poor documentation or failure to adhere to underwriting requirements that were agreed to at the initiation of the insurance relationship.

Yes, but the recisions have done a pretty high level in the MI business. Has it been similarly -- ?

They've been somewhat lower, but they have still been significant in the CCI product.

And is this business essentially in run-off for you? Or will you go back to this business?

Well, yes, we're still in the business, we're not writing any new business as I've tried to indicate before. First of all, as you know, there is a lot less lending taking place and secondly, we did change our underwriting standards substantially a year-and-a-half or so ago. And as a result of that, there's no business out there that we can write in adherence to those underwriting standards. So from that standpoint, we're out of the business, however we're still committed to it and this economy and lending activity will come back. They may not come back in the same -- with the same force as we experienced in the early part of this century, but it's going to come back. People will still need to borrow money and there will still need to be a need for institutions such as ourselves that can enhance credits.

And on the MI side, are you, just looking at some constraints on risk of capital and current market conditions, are you -- would you say maintaining your market share on new writings, or are you letting that become a smaller -- allowing you to become a smaller part of the industry? How do you look at that right now?

Well the last numbers I saw, correct me, Chris, we're still hanging on to our 9%, 10% market share, right, based on the numbers we're seeing?

Yes, we have been fundamentally flat through this whole cycle. I think we went in at about a 10% share play plus or minus, and I think we'll come out this year at about a 10% share plus or minus. And in individual quarters it will drop to 9%, to up to 11%.

Yes.

But it's been consistent through the whole period.

And Chris, given the fact that you have a large investment in both MGIC and PMI and given both those companies publish quite a bit in terms of statistics on delinquency rates by vintage, year, by type of policy, and you don't, it's pretty hard for me to benchmark you guys. One, just a comment. It sure would be great if you would look at doing something like MDIC supplement, not that they've held themselves out as wonderful underwriters, but it does give -- it allows you to get your arms around a little bit to the extent that you can. So I'd just ask if you would consider doing that. And secondly, because I'm sure you've examined their supplements in quite detail given the substantial investment you have in both of those companies, how would you characterize your underwriting performance versus those two companies?

Well, I will address both of those questions real quick. Insofar as what they report, that's obviously their business and we have no access to their books, we are a passive investor. We can speak with quite a bit of strength and knowledge about our own book and we think that our own book looks pretty good even though it is suffering like most other books from one of the greatest recessionary times we've experienced in a couple of generations. With respect to your point about the level of the amount of statistics that we produce and publish, our view has always been that mortgage guarantee is just another line of insurance at Old Republic.

It is not a stand-alone line like you see in the two companies that you've just mentioned, MGIC and PMI. And therefore, the only reason why we distinguish between, let's say mortgage guarantee and title Insurance and general insurance, is because of regulatory constraints on the one hand or regulatory requirements which -- the effect of which is to force us to write certain types of business, in our case, title Insurance and mortgage guarantee insurance, in separate stand-alone charters. But to us, it's all insurance whether we write it in the general insurance book or the title Insurance book or what have you. And to us it is all part in parcel of the need that we see for an Insurance company to have a diversified book of business, a diversified kind of risks to achieve a proper balance both within economic cycles that pertain to the insurance business as well as economic cycles generally. That may be a long-winded answer to your question, but that's the reason why you do not see us provide the same level of statistics as a stand-alone which has nothing else to talk about might do or will do in the case of most of them.

Well Al, I've known you for a long time. I've owned your stock for a long time too, and if I didn't have some respect for your business acumen and inherent conservatism, I wouldn't be there. But having said that, as a professional investor, more disclosure in this day and age is definitely a trend and --

Well we appreciate that. We appreciate both comments about your faith in Old Republic and your commentary about the need for disclosure. But there is also, and don't mean to get into an argument, but there is such a thing as overwhelming with statistics to the point where you can't see the forest through the trees, and we try not to do that either.

Yes. Okay, Al, thank you.

You're welcome.

Next we'll hear from Mike Grohdahl, Northland Securities.

Yes, Chris, one more question for you. As you describe your pools if you will, late 2005, 2006, 2007 and the first quarter of 2008, can you give us a sense for -- have you seen or in which of those pools have you seen peak delinquencies? And where you haven't seen peak delinquencies sort of what inning do you think we're in?

It's a good question. Hard to say on peak delinquencies, but what I will say is that the increases still come from -- we're seeing still predominantly come from those stressed books, which I think make some sense. Even given the current stressed environment. we've been pleased with the performance of the book that we've put on in that new period, what I call after the first quarter of 2008 through this period. Those books, the tough books, the late 2005, 2006 and 2007, they will eventually burn out and it's safe to say that we're closer to that period than further away. But I would be really reluctant to tell you when I thought they were going to burn out because you've just got too many parts out there in the economy. But -- go ahead.

What about just 2005, 2006, 2007 relative to each other? Can you say late in the game?

2005 is running a less stressed environment because the beginning of 2005 was okay and those loans have a little bit of equity build-up in them. I don't really sense much differentiation in the 2006-2007 books. They were part in parcel to one bad period of time. 2005 performs a little better but it, like 2008, is the tale of two books. Early 2005 looked pretty good, late 2005 looks like what I'll call the dark time, and then the first quarter of 2008 is pretty rough, but the second quarter of 2008 looks like all new guidelines and pricing.

And then after the first quarter of 2008, what do you think the returns are on that business you've written in the last year or so?

I would tell you -- again I don't have a specific number for you, but they were very pleased with the performance of that book and we think over the long haul, even through this early stress because it was written at lower LTVs, much higher credit and exceptionally generic other underwriting terms, we feel like we've put on a book that can withstand some early jolts to it. So we feel good it will meet any expectation we might have for a decent book here.

Okay.

Next we'll hear from Beth Malone, a follow-up question.

Okay, thank you. Just one as a technical. The interest -- what was the interest expense for the third quarter?

You got me.

Okay.

Basically it would have been roughly 9% of about an additional $300 million of debt that we put on the books in May. So that's about $6 million or $7 million probably.

That's helpful and then in terms of the title business, you mentioned that the competitive landscape has changed dramatically as some of these other title companies have come under -- kind of disappeared in some cases. Is there an opportunity for you to acquire books of business in the title market? Or would it make sense to have whole companies?

Well we've effectively done the acquisition of books, Beth, by signing up a lot of agents that got peeled off some of these companies that either went out of business or else got peeled off from merged operations or consolidated operations. And secondly, we have done the same thing on the direct basis by hiring quite a number of what we consider top notch people from these other either consolidating companies or companies that have gone out of business. So we've done it -- we've acquired books of business to a significant degree, we think, through those two avenues as opposed to buying a distinct book of business or a company for that matter.

Maybe you can't answer, this but would that suggest that your capacity in title is sufficient that we could see premium levels exceed historic levels, that your market share would be greater at some point?

Without putting a number on it, we think that we are in process of building a bigger Company.

Okay, and then one last question on the mortgage insurance business. The HAMP program -- do you anticipate that having a meaningful effect on the book of business that you insure or is it just going to be an incremental?

Chris, why don't you address that. You're closer to it.

Beth, it could be a material impact, but it is too early to tell. I think one of the things that clouds the picture is you hear a lot of talk about the performance of the early modifications not being good. The early modifications were not largely payment reducing modifications. People got behind on the mortgages and the lender simply capitalized the delinquent amount on to the back of the loan and recast the payments. So frequently, the payments could have gone up as well as stayed flat. So I don't think those are indicative. This HAMP program results in the borrowers' payments being reduced to 31% of their income, which is traditionally a very affordable rate for people. So it could be material. I mean the program does present an attractive option for borrowers who want to stay in the house. But it's far too early for us to see that. You hear comments about -- it might not be effective because 50% of the people re-default. Well, a 50% success rate on 100 delinquent loans would be very attractive.

And just one last question on the HAMP. If someone goes into the HAMP program does the mortgage insurance stay in place or does that --

Correct.

So it doesn't replace the mortgage insurance?

No. The mortgage insurance stays in place and it would go -- once the loan performed through the trial period, the mortgage insurance would essentially then have a current loan that was reported to it.

I guess you would anticipate since this is kind of just getting some legs to it, this could be something that builds over the next several quarters?

Yes. I think we'll see the reported borrowers in these programs grow over the next several quarters, correct. But it will take a while to see that impact because again, it takes such a long period of time to formalize the modification and get the borrower to make three consistent payments.

Okay. Alright, well thanks again.

Sure.

And Mr. Zucaro, are no further questions at this time. I'll turn the conference back over to you for any closing or additional comments.

Thank you. I have none, and as always, we appreciate the interest that all of you had in listening to this and participating in this conference call for the third quarter. And as always, we'll look forward to visiting again with all of you, hopefully, when the fourth quarter closes early next year. Having said that, we'll bid you a good afternoon.

Ladies and gentlemen, that does conclude today's conference. We thank you for your participation. You may now disconnect.