Old Republic International Corp (ORI) 2010 Q1 法說會逐字稿

Good afternoon ladies and gentlemen. Thank you for standing by. Welcome to the Old Republic International first quarter 2010 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. I would like to remind everyone that this conference is being recorded. I would now like to turn the conference over to Mr. Scott Epstein of the Financial Relations Board. Please go ahead, sir.

Thank you operator. Good afternoon everyone, and thank you for joining us today for Old Republic's conference call to discuss first quarter 2010 results. This morning we distributed a copy of the press release and hopefully you've had a chance to review the results. If there is anyone on the line who did not receive a copy you may access it at Old Republic's website at www.old republic.com or you may call Liz Dolezal 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 April 22, 2010. Risks associated with these statements can be found in the Company's latest SEC filings. Joining us today from Management are Al Zucaro, Chairman and Chief Executive Officer, and Chris Nard, President-elect. At this time, I'd like to call turn the call over to Al Zucaro for his opening remarks. Al, please go ahead.

Thank you, Scott. Good afternoon everyone from Chicago and on behalf of Chris Nard, from Winston-Salem. As always, we'll assume that you've read this morning's release and that you've had time to digest all the -- or at least most of the numbers we've included in it. So again, we won't waste your time slavishly repeating what's there. Instead, we'll make a few comments as usual to perhaps add a little more color and understanding to what you've received. And then we'll turn the rest of the call to questions. I must say this is the most pleasant call in a long time. It's the first time that we've reported a black bottom line since 4Q 2007. And you can bet that we're hopeful that this is the beginning of a long stretch of positive earnings for our Company. As we've done recently, I'll speak to the General Insurance business first. And then I'll turn the phone over to Chris, who will cover the housing and credit portions of our business. And then when he's through, I'll come back with some wrap-up comments on the overall picture and on the way we see our world for the foreseeable future.

So beginning with General Insurance, let me say this at the outset. With the exception of our Consumer Credit Indemnity and the much smaller Guaranteed Asset Protection Insurance coverages, all of our other lines are performing very well from an underwriting standpoint. Overall, these lines continue and have produced average composite underwriting ratios in the mid 90s for the last five years. And they've continued in the same vein in the first quarter, as you can see in the release this morning. And as we said on a number of occasions in the past three years or so, the only issue of significance that we face relating to these well-performing coverages -- the issue has been a lack of top line growth. And as we've explained, there are basically two reasons for this lack of energy up top. First of all, we've been dealing, like the rest of the American economy, with a -- of the insurance industry, I should say, in the property and liability area, with a soft pricing environment in most areas in which we operate. And by that I mean most of the industries in which we specialize, and with regard to those with most of the coverages that we underwrite in those industries.

So the soft pricing environment in which we're operating, have been operating. leaves very little room for underwriting error, since quality investment yields, as you know, continue to be very low and cannot, therefore, be relied upon to offset any underwriting weakness to speak of. Secondly, we've been dealing with a very weak private sector in what is being called the great recession. As we've said in the past, and also I repeated in the press release this morning, we can't expect a significant pick-up in our commercial insurance premium volume until we get a pick-up in economic activity, particularly in terms of sales and employment levels among the customers we insure. Employment is very critical for us. It drives our big worker's comp line, as well as other related lines. And therefore until that shows some renewed strength in the overall economy, we're going to continue having some difficulty increasing the top line to a significant degree. So when it comes to the production side of our business, our game plan remains as it's been for a while. As we like to say, steady as she goes. Stay focused on what we do best, but never stop looking for books of business that may be available, and that we can readily fit within our underwriting sphere of competence.

So it takes us down to underwriting. The main area of concern for us in our General Insurance segment has therefore been the Consumer Credit Indemnity or the CC I coverage as we refer to it. And this line has been throwing off substantial amounts of underwriting red ink since 2008. In that year, you might note, its impact was to increase the overall General Insurance composite underwriting ratio by 4.1 percentage points. And in 2009, that grew to 6.5 percentage points. And as we indicated in the release this morning, in the first quarter of this year the effect has dropped significantly, to 3.7 percentage points. So without that 3.7 percentage point impact, our underwriting results in the quarter look very good, as they have in the recent past. So the effects were in the same relative proportions, incidentally, if we measure these impacts on the basis of the claim ratio effect as we reported in this morning's release. It may be a bit too early to tell, but some of the important metrics we look at for this part of the General Insurance business, such as delinquency rates and loan amounts at risk, some of these metrics are pointing in a positive direction for the first time in a long time. And by long time I mean since fourth quarter of 2007 or thereabouts. So our best guess as we speak at this moment is that we should experience some very gradual let-up in the pressure that this CCI coverage has placed on the entire General Insurance book of business from an underwriting standpoint.

And then finally, I might note, to put this line in context, I wrote down some numbers this morning. The total CCI book is currently running at an annualized earned premium rate of about $65 million, and this is down about 50% from last year's level. And it's down a whole 70% from the peak for this line's production in 2008 when it accounted for about 10% of our total General Insurance premium base. So this level of earned premium reduction is also, in our view, part of the reason why premiums in this segment have been dropping as much as they have, both in 2009 and now in the 1Q of 2010. In all other regards, our General Insurance business is in very good shape, I would say. We've got more than adequate capital. Asset liquidity is just fine. Operating cash flow is still very positive. And prior year's loss reserves, a very important metric and element in our operation, those loss reserves continue to work out on the positive side, which of course does not in any way therefore impinge on the current year's result. That in a nutshell is our overview of our general insurance business. And now, as I say, I will turn it over to Chris and then after he's through, we'll address your questions. Chris?

Thanks, Al. Good afternoon. I will talk a little bit about the Mortgage Guarantee business, and then a little bit about the Title business for the quarter, and then turn it back over to Al. As you read in the release, the Mortgage Guarantee results improved in the first quarter of this year, both in comparison to the first quarter of 2009 and in comparison with the most recent fourth quarter of 2009. The improvements were largely related to a decline in the total number of traditional primary delinquencies. While we've mentioned in the past the declines in the newly reported delinquents that we had seen in the last few quarters, we were pleased to see the first overall decline in traditional primary delinquents that we have seen since the first quarter of 2007. And then the quarter was significantly helped by a few non -- largely non-recurring benefits related to some cancellations of some pool insurance contracts, and the benefits of a couple of captive re-insurance deals that were terminated in the quarter -- commuted in the quarter. On the production side of the business, new insurance written in net risk enforced continued to decline as they have over the last few quarters. The decline in the net risk in force continues to be due to the low levels of the new insurance written, but the levels we're writing new production, it is unable to cover the current runoff in the book. And we would largely expect both of those metrics to continue to be challenged throughout the rest of this year. That remains largely driven by one, the overall smaller market sizes that we are seeing through 2009 and continue to see in 2010, and then obviously the reduced MI penetration rate.

Our penetration rate issues continue to largely be impacted by the increase in the FHA market share. That started to occur at the end of 2007, and certainly accelerated through 2008 as the MI industry tightened guidelines and raised prices. I think it is worth noting, though, that the FHA is in the process of making some changes, some of which have just recently taken effect and some that are still in the planning stage. These both revolve around their counter party lender approvals, and also some changes in the pricing area. We think that these changes that they've proposed and are in the process of enacting, ultimately will support the financial position of the FHA. And with some increasing, some stabilization in home prices, we think the MI industry will reach more normal market share balance with the FHA. In spite of the recent rate increases that we took on individual products in 2007 and 2008, premium growth continues to be hampered, again due to the smaller market size and the premium refunds related to the recision levels we are currently experiencing. You can see in the release, net premiums earned for the quarter were down about 6%. But if you take out the impact of the captive commutations, we were down about 10% for the quarter.

Something we've talked about recently with respect to the risk-to-capital ratio, you can see from the release that the risk-to-capital ratio for the three companies that comprise the RMIC group remains under 25-to-1 in the first quarter. But it's at a level that we could potentially cross that in the coming quarters. As I've mentioned to you in the last few calls, in the event that we were to cross the 25-to-1, we have already been granted a waiver by the North Carolina Insurance Department, which is our primary state of domicile, and that waiver permits us to continue to write business in the flagship Company if the risk-to-capital ratio does exceed 25-to-1. In the event that one of the other states that also has risk-to-capital language in their statutes feels that they are unable to accept the waiver from North Carolina, or they haven't amended their own statutes to allow a company to operate over 25-to-1, we've received approval from both Fannie Mae and Freddie Mac to allow us to write in a subsidiary company if, in fact, we were unable to write in the primary rider.

On the HAMP side, which is the modification program coming out of the government these days, we continue to see growth in the trial modifications, but as expected, they have yet to convert to official modifications in any significant number. As we've talked about for the last two or three quarters, we don't expect to see the ultimate potential impact of the program on the delinquency population for another few quarters. These modifications take a long time to work through the process, particularly those that came in without full documentation and the lender has to go back after the initial application and collect the docs from the consumer. We don't take any credit in our numbers in the reserve for the prospective modification. So that is all on the upside for us. That being said, the end of the first quarter we had something on the order of 18% to 20% of the delinquent loan population in some stage of HAMP modifications. What we've seen in January and February has been a slight decrease in new HAMP coming in. We think that is largely a result of the fact that lenders have started to change in advance of a change in the rules and require that these new modifications come in with full documentation. So again, while it has reduced the number we have seen in January and February, we think those that come in today will have essentially a higher rate of [cure] than the ones that came in with limited documentation.

What I would say in summary for the quarter, is we're pleased to begin to see some positive developments for the business. We continue to believe, though, that the MI business will likely produce underwriting losses through 2010. But as the year plays out, we think we'll begin to get a better feel for when we'll start to see sustainable light at the end of the tunnel. With that, let me segue to our Title Insurance business for a few minutes. As you can see in the release, the Title Insurance Company continues to build on the positive momentum that they started with midway through 2009. Premium and fees have grown significantly from the same quarter in 2009, and those are largely reflective of our growth in market share throughout the year and this quarter. That's largely resulted from some of the recent industry dislocations and consolidations. In addition, the premium and fee line was helped by the consolidation of our new joint underwriting venture which we formed in mid-2009 that is based in the state of Florida. On the expense side, while the comparison to the first quarter 2009 is positive, the growth in expenses from the previous quarter is largely reflective of the costs that we incurred with the growth in the business and the investments we've made to opportunistically grow share at this period in the title market. Claims costs have risen more quickly than the growth in revenue this quarter as a result of us adding to the loss provisions, largely in recognition of some of the claim performance that have come out of the difficult mortgage years of 2006, 2007 and certainly the very early part of 2008. But with that, what I'd say is we're very pleased at the growth we've recently seen in the Title business, and are reasonably confident that the worst is behind us on the title side.

Okay. So to sum up, our quarterly results as we always like to say, do not mean very much in our business. But the trends that obviously that successive quarters reflect can tell something about what lies ahead at least for the intermediate term. So in the context of our underwriting culture at Old Republic, the latest quarter's composite underwriting ratio of 107% that you see there in the release for all of our coverages combined, which means General Insurance and Mortgage Guarantee and Title Insurance and a little bit of life and health business that we have, that that ratio is the lowest we've booked in the past ten quarters since 2007. So this is a good omen we think. We've got a lot of good things going for us. And while we still think that the business turnaround is going to be rather labored as is the US economy, we think that we are headed towards better times, fairly consistently over the next several quarters.

You can see in the summary balance sheet that we've provided in the release that just about every major account reflects both stability and positive trends in comparison to the year-end 2009 numbers. The capital account fortunately continues to reflect some nice upward momentum with admittedly, the higher market values for our bond and equities portfolios are most responsible for the uptrend. As you may have noticed earlier this year, we did increase the cash dividend by a slight amount. I would say that more than anything else, this action reflects our judgment that we have reasonably good expectations that the various sources of dividend upstreaming to our parent holding Company have both -- both rest on sufficient liquidity as well as a more than adequate amount of capital to permit this consistent upstreaming of dividends, as I say. As we said a few minutes ago, we will just open it up to your questions now.

Thank you, sir. The-question-and-answer session will be conducted electronically. (Operator Instructions). And we'll take our first question from Beth Malone with Wunderlich.

Okay. Thank you. Good afternoon and congratulations on the quarter.

Well thank you, Beth.

I have a couple questions. First, one of your competitors has mentioned that they lost a large account to provide mortgage insurance with [Bank of America]. And I'm just wondering, is that an opportunity for Old Republic to gain market share?

Well, I'll start, and -- but call on Chris to address the question more fully. Whenever a competitor gets out of the market willingly or unwillingly, that always creates opportunities for everybody else. But as we've said on a number of occasions, Beth, we are not on a market share growth tear at this point in time. Although we are carefully and opportunistically doing business with every customer that will do business with us and we with them. Chris do you want to add to that?

I think Al covered it.

Okay. And on the ratios, Chris you mentioned that you may exceed the 25-to-1 and you do have the ability to do that. You've gotten some agreements with the GSEs. But how do you all view the situation? Is capital going to be needed for Old Republic in the near term to meet some of these, if there is some recovery in the mortgage insurance market?

Well, I'll address that too. If you read our annual report letter, Beth, there's a section in there where we talk about capital needs, not just in the Mortgage Guarantee business but elsewhere in our business And one of the things that we've been doing, as you may recall from discussions we had on the analyst visit last -- what was it, November of last year, we are, we have been in process of re-calibrating our business to the point where we are laying low, if you will, on the Mortgage Guarantee business until we see which way the wind is going to blow. I mean one of the big issues has to do, as Chris pointed out, with the market share that has been obtained by the FHA. And to the extent that some of that market share gets released into the industry, the MI companies, including ourselves, should have an opportunity to gain some market share.

As to your more pointed question about the need for capital, again, as Chris indicated, we do have a number of states, including our state of domicile, that have agreed to give us some leeway in terms of the amount of business that we can write as indicated by the so-called risk-to-capital ratio. Chris again pointed out that that that ratio could well exceed 25-to-1, and as I say, we have this leeway to go beyond that, and still be able to do business. The key element, obviously, in that ability has to do as always, with our acceptability as a carrier for the two GSEs. And so far, we have been able to show them that we're here for the long run, and that he amount of capital we have for the amount of risk that we are currently carrying, is more than adequate to see us through.

Okay. And then just one last question on the General Insurance business, the more traditional contractors in long haul trucking. I know you mentioned in your press release that pricing remains competitive, but are you -- are you at al, optimistic at this point that -- does it look like there's any relief in the near term or in the next couple of quarters in terms of pricing? And what do you think the, the market will look like here for the next couple of quarters?

Well, as we always say, particularly with respect to commercial lines, Beth, one of the big drivers has to do with one, of course, the economy and how much demand there is for the product, and how much capacity there is out there. But also, it has to do with what investment yield are. And to the extent that yields should increase down the road, that will make it more difficult for pricing to recover to any significant degree because again, the markets are very efficient. And generally in our industry, you either make it on the underwriting side or you make it on the investment side. But rarely does the market efficiency allow you to do both for any extended period of time. So the answer, the short answer to your question is right now we don't have a feel for what's going to happen to pricing. We're satisfied with the prices we're charging right now, even though they've softened for the last three years in particular. We've been able to hold the line. We've got great retention of business at Old Republic throughout our system, more than the [mid-80s,] which is very good, and is testimony we think, to the value that our customers place on our service and the quality of the promises of financial indemnity we make to them. So time will tell.

Okay. Well, thank you. I'll get back in queue.

Sure.

And we'll take our next question from Joe [Gagon] with Atlantic Equity Research.

Questions. The first question in regard to the mortgage business. As far as I understand after a mortgage is 90-day delinquent, you have to take some type of charge. It could be for the whole amount or it could be a percentage. Is that how it works?

Yes. Generally we're notified when the loan has gone 60 days delinquent, and that's when we set up the first reserve.

Okay. But as far as set up the reserve, it's up to your discretion what percentage it is. It could be -- right, is that how it works?

Well what we do is we watch, we set up an initial reserve at 60 days. It's what we call a status one.

Right.

And then we watch that loan as it moves through the statuses and increase the reserve as it gets closer to its ultimate disposition.

Okay. Now as you know, a lot of these loans out there, the banks didn't -- kept them going, and didn't write them off, right? Or foreclose on them? And then as far as I understand, there was a significant increases in the actual number of actual foreclosures in the first quarter, right? Did -- does that -- did that have any effect on what you're doing there, in the fact that there was all these ones in limbo and then all of a sudden the banks decided to foreclose?

Well, remember, we have each individual loan and we look at the progress of each individual loan.

Right.

So we can see them move through the various statuses. So I don't think the aggregate effect of what you're talking about, I don't think we were surprised by anything in the quarter or how the portfolio of delinquents we have moved through the various statuses.

Okay. Now as far as on this mortgage insurance business it says the pre-tax operating loss, $34.1 million Now it -- so if you didn't have the one-time gains from the termination of your pools there, so would that have been $69 million in losses?

Well, you have a $34.1 million loss --

Yes.

Right?

Yes.

Which obviously has been affected positively by the $35.6 million that we mentioned in the press release.

Right.

So you have to add those two numbers to get to what that loss would have been. So on an apples-to-apples basis --

Yes.

You would say that we had about a $70 million loss in this latest quarter.

Right.

Versus the $144.6 million that you see in the 1Q 2009.

Okay.

That's the apples-to-apples comparison.

Okay. Good.

And then we've shown you also in the press release, towards the end of the section on mortgage guarantee on how the lost costs, in this case of $127.2 [million] were arrived at. What were the main factors which affected that loss cost.

Okay. Excluding the $35 million benefit, it was a significant decrease in losses. Is that just -- is that just a result of a decline in the number of delinquencies or foreclosures? Or what is that big decline from?

We had, as I mentioned in the beginning comments, it was the first quarter since I think the first quarter of 2007 where we've actually seen a decline in the number of -- total outstanding number of traditional primary delinquents.

Okay.

And that obviously has the impact.

And then one final question in regard to the General Insurance business. The claims ratio went down to 70.6%, and the year before it was 74.8%, right?

Yes.

And the quarter before it was -- in the fourth quarter of 2009 it was 77.1% and then the fourth quarter of 2008 it was 73.3%. So that's a big swing, quarter to quarter, and the net [earning] premiums were down 10% and they're still in the pricing -- the pricing for the rates still went down. So how did that big swing happen? Because usually you get more sales or it's higher rates. So how did that big swing happen?

Well, as I we tried to say before, Joe, we don't think that the quarters are particularly meaningful. You can have any kind -- all sorts of impacts. You can raise reserves in some areas, lower them in others. I mean, we reserve for our business bucket by bucket, by type of risk, by type of claim and so forth. So there's no particular rhyme or reason to what you see on a quarter-to-quarter, we don't think. I mean, true enough, the trends are there, but there's so many variables that it's hard, very difficult to come to any sort of conclusion. However, I will say this to you -- If you look at the impact, again, of that CCI product, there's no question that it affected the loss ratios for each of those periods that you speak to. And if you eliminate that impact, you will see that the loss ratio has been fairly steady in each of the quarters, ex that CCI product.

Okay. Good. All right. Well thank you very much.

Yes, sir.

(Operator Instructions) We'll take our next question from Mr. Bill Clark with KBW.

Good afternoon guys.

Hi Bill.

Congratulations as well on the improvement this quarter. Just one question. Could you share how many delinquencies dropped out the MI delinquent inventory due to the pool cancellations in the quarter?

Yes. I think it was accounted for the -- I'm looking for it here. I think it accounted for the bulk of the improvement in the pool insurance side.

Okay.

Nothing dropped out of the traditional primary bucket.

Okay.

The pool cancellations only affected the pool delinquents.

All right. So it was -- most of the quarter-over-quarter change was due to that in the pool category.

Yes, in the pool category. But remember, the pool is a little more volatile than the traditional primary is. So we're a little more confident in the embedded trend [in the] the traditional primary side.

Okay. Thanks for the color.

[Not a problem].

And we'll take our next question from Jordan [Heimowitz] with [Fidelity] Financial.

It's actually Philadelphia Financial, but thank you very much. Question. Is -- what percent of reserving do you do with 60 days?So if you're going to reserve $18,000 for reserve for a loan in default, what portion of that $18,000 would be reserved at 60 days?

Well we don't release that. But what we do, is we watch cure rates, we watch geography, we watch loan types. We take all that into account history to determine how we think that new delinquent is going to move through the pipeline. And obviously, it's a lower number in the early stages because you get a lot of noise in the earlier delinquent statuses than you do in the later statuses where you're more certain that that loan is going to move through to ultimate foreclosure.

But what would be a range, so to speak, if you can't give the exact number? What's the high-low range of what you would reserve at 60 days?

Yes, I mean, we don't talk about ranges. But I think it's obvious that when they come in, in a good housing market you'll see most of the early ones cure. And in a tougher market like we've been in, you'll see those early ones -- a greater proportion of those move through to foreclosure. It has a lot to do with whether there was any equity in the property. It has to do with home price appreciation in the various markets. It's a pretty granular process.

I mean, but are we talking in the range of 30% to 40%? 50% to 70%? I'm just trying to get some kind of magnitude of range. If you expect to lose $53,000 per average thing,what percent of that would you reserve when it first becomes delinquent as a broad guess? I just have no idea. I'm trying --

It's a significant portion of the delinquents that have come in. I mean, it's again, we don't give out that number, but it's a material amount in this marketplace, where it might not have been in 2004 and 2005.

Is material more than 50%?

It's material.

Okay. Thank you.

And we'll take our next question from Matthew Goatsinger with [Fiduciary]

Hi thanks for taking the call. Just quick question for you gentlemen.

Sure.

On the re-insurance commutations or cancellations, I'm just trying to intuitively understand the $30 million of reserve releases.

That's on the pool, that's on the pool, Matt.

That's the pool side.

You had two different transactions go through the system. I mean, you've followed Old Old Republic and you'll remember that in the third quarter of last year --

Right.

We had a number of re-insurance captive commutations, okay? And those were treated in the same fashion as the current two commutations have been treated, i.e., that we got all the money that was there, that was on deposit with those captives. And then we got some extra money to cover the losses that we are assuming from those captives since the contract is being terminated. Okay? So the $5. -- whatever it is here -- $5.3 million --

Yes

That number is equivalent to the number we posted in the third quarter of last year. When it comes to the pools, that was a reversal of the transaction in effect, okay? Where we in effect are in the same position as a captive, which means that we give back the reserves we have to, in this case the GSEs, whose pool we insured. And it turns out, as indicated in the release, that the reserves that we turned back were less than the reserves that we gave up. And therefore, there comes the reserve release that we have indicated in the press release and the last table under the Mortgage Guarantee write-up. Make sense?

Yes, I think I'm getting there. I think what I'm trying to understand is at the end of the day the $35 million cumulative benefit from the two transactions in the quarter, if that is expected over time to eventually --

Well no, the amount on the pools completes the transaction. The amount --

Yes, those --

The two captives does not complete the transaction. And that's why we keep making the statement that you have an accounting, a GAAP accounting idiosyncrasy here in that a GAAP accounting requires you to book the premium up front, and recognize the claims of the future periods in those future periods. So there is a mismatch whenever you have this kind of transaction between the recording, recognition of the premium and the ultimate estimated emergence of claims.

Right. I actually like the way that you guys did it initially. So that's what I'm trying to work back to and try --

Well we like it too, but --

Right.

We would -- by the powers that be, that's not right. So then you do it the way they think it's right.

But the pool actions are closed out. Those pools are terminated and the exposure is off the books.

And that's the $30 million and then the other $5 million was not terminated in a sense.

Exactly. Got it.

kay, I've got you. Thanks guys.

Yes

We'll take our next question from Jeff [Dansey] with Cutler Capital Management.

Good afternoon.

Yes, sir.

Could you please discuss your investment portfolio, how you're positioned and what you're expecting going forward?

Our investment portfolio has not changed in terms of its composition for years. We like to refer to it as a pristine portfolio. If you look at the disclosure we have in both the press release and the 10-Ks and so forth, you will see that we allude to the fact that the portfolio doesn't have any garbage in it., that most of it is readily salable. There are no private equities. No nothing in there. The only portion of the portfolio that has been volatile for us has been related to the two investments that we have mentioned several times over the last couple of years, and those are investments in two mortgage guarantee competitors. And I'm sure you've seen that those stocks have reacted very positively in last three or four months, and as a result of that, we have recaptured quite a bit of the value write down that we took on those two securities in mid year 2008 as I recall. So our portfolio, one, is very liquid. It's of high quality, and it is primarily a bond portfolio, which is very well attuned to the expected maturity of the claim and other obligations we have in our insurance subsidiaries. Meaning that we could probably, if we wanted to, extend the maturity of the portfolio and still be in very good shape. We've chosen not to do that because we've concluded over the years that we did not necessarily get paid very well foregoing longer than we have been.

And that remains your outlook, that you want to stay shorter?

Absolutely. Our feeling is, for what it's worth, that given the fact that the printing press are going full speed ahead in Washington, that the expectation is that you're going to see an uptick in interest rates before long, and that we want to be positioned to take advantage of that. And therefore, we do pay a price, obviously, for being short, or shorter than we need to be, but we think in the long run it will pay handsomely for us.

And at what point do you re-evaluate your holdings in MGIC and PMI?

Every quarter.

I look at the movement in the stock obviously can have a significant impact on your book value.

Every quarter we look at it. Actually we look at the stock tables on the web every day.

And are you still viewing these two as a way for you to expand your market share in the mortgage segment?

Again, we have repeated the same kind of disclosure that we've had, I think since 2007. And that is that we bought these securities with the expectation that they represented for us a passive -- an additional, but passive, interest in the mortgage guarantee business. And that we bought them, as it turned out, much too soon. But we bought them in anticipation that the markets would turn around in 2010, this year. Obviously, that also does not appear to be in the cards, and that we for one believe that the mortgage guarantee market will not turn itself into a profitability before 2011 at the earliest.

Okay. And stepping back a little bit, do you have a target percentage of your revenue for earnings that you want each of your three segments to account for?

We, we do it through the capital allocation process. And if you go to our website, there are charts there that emanate from our annual analyst visit in November of each year. And you will see a chart there that shows where we have been and where we intend to be from a capital allocation standpoint, and that will drive everything else.

Okay. Thank you.

Yes, sir.

(Operator Instructions). And we'll take another question from Beth Malone with Wunderlich.

Okay. Thank you. I have a couple more questions. First, on the General Insurance, was there any favorable reserve development or development at all in the quarter?

We typically, Beth, on an annual basis get a couple percentage points, 2% or 3% overall favorable development of claims, I don't have the number in front of me, but I can say to you with great assurance that it was in that 1% to 3% area in the quarter. That rate on an annualized basis.

And did you have any --

And that here was not much difference between what happened in the first quarter versus what happened in the first quarter last year. Our feeling -- our belief has always been and our commitment has always been that if there should be any material deviation from history, we would disclose it. So as long as we don't disclose it you have assurance that things are pretty much on even keel.

Okay. And then was there any elevated levels of weather-related losses for the quarter? Some companies experienced --

Well, as you know, we are not exposed to property --

Okay.

coverages to any significant degree. So we don't experience any of those vagaries as a result.

Okay. And then on the recissions, are -- is that related to the re-insurance commutations or are those two different things?

You're talking -- You're talking Mortgage Guarantee now right?

Yes, sorry.

Those are two different things. The recissions are when we find misrepresentation in a delinquent loan or a claim file, the commutation is simply an assessment of whether it's worth commuting the cap degree insurance transaction. They're not related.

Okay. And have you all selected a new accounting firm yet or does that have happen with the annual meeting?

Well, we, as you may know, if you look to the SEC filings, we filed a so-called Form 8-K back in -- what's this, this is April? I guess early April --

Yes.

If I'm not mistaken. And we indicated at that point that we were in the selection process. And I don't have the dates in front of me, but they should occur sometimes in early-mid May. Which means therefore that they will not be subjected to shareholder approval because of the date of the shareholders meeting not coinciding with the date when we will be making a final selection of auditors.

Okay. And then one other question. On the FHA. I know you can't predict what they're going to do, but would it -- should we assume that if the mortgage insurance environment improves, that the FHA will reduce their participation in the mortgage insurance market or -- because they're just there as kind of to support it? Or is that not how things are thought through?

Well, I would think about it, Beth, in this fashion, that is the FHA evaluates where they are and where they want to go. They are in the process of making changes to things like the net worth requirements of the -- of sellers to the FHA. They're making changes to the pricing on the upfront standpoint. They can't make changes to the renewal rate, but they have asked congress for the authority to change the renewal rates, and they're talking about other changes to the underwriting guidelines. So I think it would be more focused on them making changes to the day-to-day operation of the fund as opposed to the statement that the market's better and they'll retract.

Okay.

Same net effect but different motivations.

All right. All right. Thank you.

And that is all the questions we have at this time. I would like to turn the conference back over to Mr. Zucaro.

Well thank you. And as always, we appreciate very much your interest. And hope that you, as we said initially, got a little more color about the results that we just published for this first quarter of 2010. So on that note, we'll bid you farewell and look forward to visiting with you again next quarter. You all have a good day.

And that concludes today's conference. We thank you for your participation. You may now disconnect.