Old Republic International Corp (ORI) 2010 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Old Republic International second quarter 2010 earnings conference call. Today's conference 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 questions. I would now like to remind everyone that this conference is being recorded. I will now turn the conference over to Leslie Loyet of the Financial Relations Board. Please go ahead, maam.

Thank you. Good afternoon, everyone, and thank you for joining us today for the Old Republic conference call to discuss second quarter 2010 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 Old Republic's website at www.oldrepublic.com. Or you can 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 July 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. At this time, I'd like to turn the call over to Al Zucaro for his opening remarks. Please go ahead.

Thank you. And good afternoon to everybody. As always, we appreciate very much your interest in following the trends in our business on a quarter-to-quarter basis. Also, as always, we assume that you have seen or have access to this morning's press release so we will not slavishly repeat what it is in there. Instead, we'll just add some color to what you have already seen and read. At the halfway mark this year, so far, the overall results we're posting are reasonably close to where we expected them to be at budget time late last year. However, while they are on target, the makeup of them vary somewhat from the expectations we had at the time. In General Insurance we thought -- some of you may remember our saying -- we thought that we would be posting a composite ratio for that business of about 98% or so, 96% to 98%, as I recall we said. But here we are staying at the same level at the same time last year, i.e. at about 102%. And we are, therefore, clearly in underwriting loss territory still with respect to that major part of our business.

In Mortgage Guaranty, even if we exclude the beneficial effects of the several transactions that we disclosed in this morning's release, the underwriting losses we are reporting are currently running at about half the rate we reported in last year's first half. So this business, even after taking these other factors that I'm sure Chris will speak to in a few minutes, this business is beginning to feel like it is on a rebound and that it should gradually turn to a stable level of profitability in the next 24 months or so. To a large degree, we have the same feel for a rebound, and in the title side of our operations at half time this year we thought we'd be posting a little better underwriting ratio than the 103% or so percent that we've booked so far, and that you see in one of the tables in the press release. But as you can see, this ratio is nearly identical to last year's performance. The story here continues to be the same as we have reported for several quarters now. And that is that we're having to invest a lot more than we first imagined, mostly in people resources that are needed to sustain the much greater market share that we are garnering. To the best of our knowledge we are currently running at a little more than 10% market share in title insurance, and that's just about double where we were just a year or so ago. So we're really making hay in terms of getting more business in the front door. So now we think that it will take a while longer for operating expenses in title insurance to strike a better balance with the top line.

Looking at our General Insurance business in a more granular fashion, the lack of progress in the underwriting front in our view rests on the -- primarily on the operating difficulties that we're still encountering in our Consumer Credit, or CCI coverage. As we noted in this morning's release, the delinquency rates on that business, oddly enough, have been dropping fairly steadily since mid-year last year, or thereabouts. But even in the face of strong loss mitigation efforts, the line obviously keeps delivering unabated loss frequency. As we noted in the release, several insured institutions are currently responding, have been for several months now, with more timely claim verification of the delinquencies that they are reporting -- have been reporting to us. And this is having the effect of turning a higher number of delinquencies into actual indemnifiable claims sooner than might otherwise have been the case. And also we're still in our reserving process for those claims. We're still, or continue to take into account what we consider to be historically low levels of mitigation opportunities, so that the loss reserves are tending to stay at a much higher level than would have been the case when we were a number of years ago, in fact, experiencing and reflecting in the reserves a much higher level of mitigation opportunities and benefits.

And this, of course, applies to the four more recent accident years, namely 2007 through 2010, which are still alive from a reserve development standpoint. And, of course, these two factors are also boosting the claim ratios we are posting. At this juncture, if we were to hazard a guess, it now appears to us that we are not likely to be out of the woods in this CCI line until well into 2011, if not 2012. And I might add, as again I'm sure Chris will speak to in short order, that these expectations for the CCI coverage pretty much mirror those we currently have in terms of the expected return to a stable, profitable mode in our Mortgage Guaranty line. In most other regards, our General Insurance business is holding up very well from an underwriting standpoint. If we eliminate the effects of the CCI coverage, as we've mentioned in the earnings release this morning, and we mentioned that in terms of the number of percentage points of loss ratios which have been increased by virtue of the experience we're having in CCI, the remainder of our General Insurance business is sporting a composite ratio that is still reflecting a mid-90s level, just as did it in 2009. Again, ex-CCI effect. So we're still experiencing, however, in General Insurance, lessened market opportunities to grow the premium revenue stream. But we're still confident that we'll overcome this particular issue of top line as the US economy picks up some steam during the next 18 to 24 months.

We continue to believe insofar as this cycle for both the General Insurance business as well as the US economy, that it is going to be much more of a long, drawn out situation and that we're not going to come out of these recessionary conditions as quickly as we have tended to be accustomed to in our country. In the meantime, there are some positives that are happening to the General Insurance business. For example, our very large truck insurance operation is beginning to show some early signs of premium growth. And that is mostly due to the benefits of an expanded agency plan that we've been working at for several years and some very good, high business retention rates in the high 80s. So we are keeping our business in trucking as well as in most other coverages. But the issue is, particularly in those parts of the business that are where the premiums are truly based on sales or miles driven or employment levels, the premiums are still being affected downwardly by the lack of strong, economic activity. But as you know, trucking, just like the cardboard business, is one of the early indicators of an economy pulling out of the doldrums. So we feel good about seeing this part of our business benefit from these early indicators of economic recovery. Year-to-date,I might add, the premium levels in trucking are up about 8%, which is the first time in two or three years that we've had this kind of uptick in the top line.

And I might add that the same thing is happening with our home warranty line which, like title, benefits from both re-fi activity as well as original sales of homes. That business is also showing signs at once of greater market penetration, although there our production facilities are primarily on a direct basis as opposed to agency driven. But nonetheless, we are getting, we think, a better share of the market that's there, and proof of it is that year-to-date premium growth in home warranty is in the low teens. Maybe it was around 12% or thereabouts. In terms of earnings quality for the General Insurance business, we continue to experience year-over-year stability with respect to prior years' claim reserve developments. And as has been the case for us for quite a number of years, we continue to reflect small annual year-to-year redundancies ranging between 2% and 3% or 4%. So that is very good in our view. And that is the numbers that we're publishing are much more reflective of current levels of underwriting quality as opposed to being tainted by issues dealing with prior years' reserving. Cash flow-wise, I would say we were borderline negative, which means we had about $2 million, as I recall, of negative operating cash flow in General Insurance. And that is reflective mostly of the lack of top-line growth that we are experiencing overall in that business. So, let's see, Chris, why don't we cover the housing and mortgage lending portions of our insurance coverages.

Sure. As you can see from the release and what Al said, the year-over-year improvement we're seeing in the MI business results mostly from the lower claims costs and also benefits from the cancellation of some pool insurance policies that we had in the first and second quarter. And to a lesser extent, the termination of a few small captive re-insurance arrangements that were executed in the first and second quarter of 2010. We've seen the traditional primary delinquencies decline in both the second quarter and in the year-to-date comparisons. I think it's worth noting that that stands in pretty sharp contrast to what we saw in the first half of 2009, when the traditional primary delinquencies rose significantly through both of those periods.s That recent decline in the delinquent inventory is reflective really of two things. It's the decline in the number of newly he reported delinquents, as well as what we were glad to see was an increase in cure rates on the existing delinquent population over the first two quarters of the year.

To take a second and turn to the more challenging side of the business, new production, you can see the from the release, that our new insurance written was down in both the second quarter and in the year-to-date comparison. And I will talk a little bit about that in the next few minutes. But on a slight positive note, we did see that new insurance written was about -- almost 30% in the second quarter vis-a-vis the first quarter of 2010. As a result though of these low levels of new insurance written, we've seen the continued runoff of the bulk business and the high level of refunded premiums related to the recission activities that the industry has been experiencing. As a result of that, the net earned premium line has continued to slide. As well, the drop in new insurance written has also contributed to the net risk in force decline that we have seen over the last several quarters. At these low levels of new insurance written, we're unable to replace the risk that has left the portfolio due to refinancing or claims settlement. Looking forward on that topic, we would continue to expect to see the new insurance written and the total risk in force be challenging throughout the rest of the year as we deal with these lower overall market sizes and the reduced MI penetration rates that we're seeing in the market.

As a matter of percentages, the MI penetration rate we estimate in the first half of the year is running really at historic lows, and is likely under about 5% for the first half of the year. The other piece of the production equation is market share. Through the first part of this year, RMIC's market share has trended down somewhat, and the most recent reports I think we would have is through the end of the first quarter. And what we're seeing there is a range probably tin mid-9% area. I'd largely attribute that downward trend to our reluctance to moderate some of the terms of trade in the business until we're a little more comfortable with what we see in the real-estate market stability here over the next quarter or so. As we think about the MI industry penetration rate, it really continues to be driven by two major factors. One is obviously the higher FHA market share that we have seen really since the end of 2007, beginning of 2008. The other is the impact of the delivery fee charges that the GSE imposes on some certain high LTV loans. In our view, we would say both of these factors, in addition to the low overall volume in the market, contributes to the production at these very low levels.

Switching gears a little bits to the modification side. With respect to HAMP in particular, we saw some changes in activity in the second quarter of the year. Specifically, and there was a lot written about this year, specifically, servicers began to clear out a lot of the aged HAMP modifications that they held in inventory. As a result of that, we saw a material decrease in the number of delinquent loans that were in some status of HAMP. But when you go back and look at that, we would think that bulk of those had a very low level probability of curing, hence the reason why they were cleaned out by the servicers. That being said, as of the end of May, we have seen close to about 7,000 loans cure as a result of the HAMP modification program. Looking forward, as far as the newly reported HAMP goes, we've seen the expected drop that we anticipated as a result of the increase in the documentation requirements before a borrower was activated. But again, we would assume that those newly reported HAMPs will have a higher probability of cure given the more qualified nature of the loan.

Another positive trend in the mitigation area, is the recognition of the need for additional modification opportunities for borrowers who may not qualify for HAMP or who may fall out of the process for one reason or another. And I think what we've seen is Fannie Mae and some servicers develop modification programs that will catch some of these borrowers who still have a likelihood of curing but were unable to qualify possibly for the debt-to-income ratios or some of the documentation requirements in the HAMP. Moving on to the capital discussion, as you can see from the release, the risk-to-capital ratio for the group of companies that comprise RMIC remains under the commonly referred to 25-to-1 level. But the risk-to-capital ratio is at a point where could potentially cross the 25-to-1 threshold in the coming quarters. As we've mentioned on previous calls, in the event that that were to occur, we've been granted a waiver by the North Carolina Insurance Department, which is RMIC's state of domicile, that would permit us to continue to write new business in the flagship company if we do pierce that 25-to-1 level sometime this year.

In the event that another state who may have a risk-to-capital ratio requirement would not either recognize the North Carolina waiver or would have granted us a waiver through their own statutory processes, we have an agreement in place with Fannie and Freddie that would let us continue to write new insurance in a subsidiary company whose risk-to-capital ratio is in fact under 25-to-1. All that being said with all going on in the marketplace, we were certainly pleased to see some positive developments in the MI business in the second quarter. In spite of that, I would say we're still cautious as we look to the third and fourth quarter of this year. But as we think -- and we think as we will see those two quarters play out, we'll have a better look into 2011 and be able to get a better feel when stability will return to this line for us.

With that, I will take a second and switch gears to the title side of the business. Unlike the Mortgage Guaranty business where we have had tremendous topline pressure over the last few years, our title business has been able to really continue the positive topline line momentum that they were able to get going in the second half of last year. And in second quarter of this year, we posted a small profit in comparison to the loss generated in the first quarter of 2010. Premiums and fees were up significantly. They showed strong growth and were up about 35% over last year's second quarter. And those gains really reflect largely our growth in market share, which has come from one, some dislocation in the business, and two, our joint venture with the Attorneys Title Insurance Fund in the state of Florida. As a result of those events, our market share at the end of the first quarter, again the last reporting period we have, was up significantly, to about 10.5%.

As Al mentioned in his opening comments, expenses, though, in this business are up as well for the quarter and the year-to-date period. The growth in expense this year is largely reflective of the infrastructure investments we have had to make to manage a much bigger business these days. And the investments that we have made to opportunistically grow production that we think is available as a result of some of these events in the business. Claim costs in the title line rose just very slightly as we made some additions to loss provisions based on some of the developing recent book years. That all being said, we're certainly pleased at the growth we've seen in the title business recently, and are reasonably optimistic that we're starting to stabilize in this real-estate business. With that, I will turn it back over to Al.

Okay. Let's see, a few points on our consolidated situation. Old Republic continues in our view to look very good from a financial condition standpoint, even though we readily admit that consolidated operating earnings trends still leave much room for improvement. As you have seen in the release this morning, we posted some pretty significant realized gains in this year's second quarter. That's rather unusual for Old Republic to post large gains, because we are fundamentally a buy-and-hold asset liability matching type of Company, particularly as that applies of course, to the bond portfolio. However, what happened in the second quarter of this year, we took advantage of some positive market valuations, which we consider to be rather temporary, to sell part of one of the passive Mortgage Guaranty investments we had. And concurrent with that, we obtained a strategic redirection, if you will, of our municipal bond portfolio which had some rather significant built-in gains attached to it.

And as you can see in the table towards the beginning of the press release, what we basically did was to match the actual tax basis loss which pertained to the partial sale of the MI investment. We matched that mostly with gains from sales of a portion of our tax exempt bond portfolio and some other odds and ends that we had that we thought we should get rid of for one reason or another. So in the process of all that, we garnered total proceeds from all of these sales of about $660 million in the second quarter. I think year-to-date our total proceeds from all sales were about $772 million. I don't have the exact number in front of me. But it was $660 million in the 2Q. And we redirected the funds mostly to taxable bonds, which have higher overall yields and should have a more beneficial effect from a tax efficiency standpoint going forward. In other regards, our consolidated balance sheet and the income statement do not reflect any major departures from what was reported at year-end 2009 or at the end of this year's first quarter, for that matter.

The 2010 effective tax rate that you see there in our income summary of about 8.4% is obviously much greater than the negative 42%, or thereabouts, rate in the first half of 2009. And that, of course, is a direct reflection of the fact that in the Mortgage Guaranty business in particular, we are incurring less underwriting losses, which, as you know, are taxed at the full 35% corporate rate. And as a result, the effective taxable income of the organization on a consolidated basis, has driven the tax rate to the 8.4% level that I just mentioned. As we moved from a pretax operating loss of almost $179 million last year to $36 million in this year's first half, not only did we have a higher tax rate, as I say, but our cash flow on the other hand was driven down, and we reported that towards the end of this morning's press release. And, of course, the major reason is that Chris alluded to, and that is the impact of these insurance pool terminations, which required us to, in fact, pay money back for the reserves that we were giving back, so to speak, to assureds -- to the GSEs.

The only other item of note for our business at this point in time relates to the pending acquisition of the PMA Companies that we reported back in June of this year. Since then, we have filed a registration statement with the SEC, and PMA people have filed concurrently,a proxy statement which is to be sent to the PMA shareholders for approving the deal. We have just heard from the SEC that we can go effective pretty much at will. And we propose to do that in the next several days, and so that PMA will be sending out the whole package, which, incidentally, you can all see on the Edgar SEC website before it gets sent to the shareholders of PMA. We expect the deal to go through. And as we have from the very beginning in dealing with this possible acquisition, we think that the merger of these two Companies should be very beneficial, both from the standpoint of policy holders and, of course, the shareholders. So right now we think that the transaction will probably close by late August or early September of this year. That's about the length of the comments that Chris and I were prepared to make. And as was proposed at the beginning, we'll now open the meeting to any questions you have. And Chris and I will decide between ourselves as to which ones each of us answers.

Thank you so much, sir. (Operator Instructions). Our first question comes from Beth Malone, Wunderlich Securities.

Good afternoon.

Hi, Beth.

Hi. Just a couple questions. On the CCI business, it appears that that remains a very challenging operation for you and losses continue. And I was just wondering, and maybe this isn't a right analogy, but it would appear that market conditions for mortgage insurers and managing the mortgage insurance business seems to be making some headway, showing some progress. And I was just curious as to why there isn't some kind of similar trend in the consumer part of the business, because I would assume the same economic factors affect both kinds of businesses.

Well, you've seen a little bit of that, as Al mentioned. We've seen the delinquency rate come down on the Consumer Credit business. And I think that part of it is really analogous to what I said about the delinquencies declining in the first two quarters for the MI business. The difference that we've really seen, particularly in the last quarter in the CCI business, is that, and again, as we referenced in the release, we've had some movement with some individual insureds, where the claims process has actually sped up. And that's had an impact of fronting some of those claims beyond what our expectations may have been at the end of the year. So in some respects, Beth, it's similar, the development of the delinquencies. In other respects it's dissimilar, when I refer to the impact of a couple of specific insureds.

And I might add also, that unlike the MI business, Beth, which is still producing -- although as Chris indicated, admittedly at lower levels of production for all intents and purposes -- and those new premiums are obviously helping the underwriting account and offsetting some of the issues pertaining to prior years' MI production in as much as the current production is of very good quality, is not pumping out any claims to speak of. The CCI coverage is currently, I should say relatively [moribund] in as much as are both our underwriting standards that have been established as well as pricing considerations, as well as the lack of lending by financial institutions on consumer loans, which were the loans that we were insuring when the market was going hot and heavy. That that also is detracting from a quicker return to profitability of the CCI product. So you've got all the elements that Chris just mentioned, and the fact that we, for all intents and purposes, do not have any new production as an offset to the costs related to past production.

Is your intent to stay in the Consumer Credit business then?

Yes. We think it's a good adjunct to the Mortgage Guaranty business. As we speak, we don't have a very good feel yet as to what that business looks like going forward. It probably, at least initially, as the consumer lending is resurrected, will be a smaller business than it had been coming out of this stronger economy we had a few years ago. So we need to reconfigure, as I believe we've mentioned before. We need to reconfigure and we're busy reconfiguring our policy forms, underwriting standards and pricing. And then, of course, an awful lot is going to depend on how quickly lenders start making loans again to consumers for home improvement, home equity, or whatever type of borrowing that the CCI product is aimed at.

Okay, and then a question on mortgage insurance. On the commutations and the accounting for the commutations, the way you're being required to record the revenues from these commutations, are we to anticipate that that's going to have the reverse negative effect sometime down the road? That it's actually going to -- you are going to have to record a loss at some point, that you have already recorded the gain?

Yes, I wouldn't think about it that way. We've, as you know, from our actions in the third quarter of last year, this was not our preferred way to do it. But what occurs is we book that risk premium today as income. That premium is associated with the risks on the loans going forward. So to some extent, the answer to your question is yes, we'll incur those losses on those captive commutations as they go delinquent in future periods. But it will be more in the normal course of business. It won't be a one-time negative entry.

But there's no question, Beth, to your point, that this type of transaction, because of the required accounting, does reflect a mismatch of revenues and expenses. However, in all fairness, people will also, people who are knowledgeable and familiar with the Mortgage Guaranty business, will also say to you that inherently, the accounting for MI does not and is not necessarily intended to [affect] the type of income and expense matching that you find in the property and casualty business where we are issuing one-year policies, okay. So take that as you will. The answer to your question is, yes, we'll have future losses. As Chris mentions, they will be, for lack of a better term, bled in the same fashion as losses on the other part of the business.

Okay, and then one last question on the PMA acquisition. In the S-4 filing, it was disclosed that PMA was in a dispute with the insurance department, the state insurance department. Does that dispute over reserves development, does that have to get resolved in order for the transaction to close?

Of course, as you know, both PMA and ourselves are constrained from speaking about all the issues dealing with both companies, both PMA and/or Republic beyond the realm of the registration statement. I believe that if you look at the registration statement, I can repeat for you the fact that the insurance department examination has been -- the determination or the conclusion of that department examination has been moved forward, and that is intended to give all sides the ability to take a look at matters, because you have to remember that examination goes back to year-end 2007. And a lot of water has flowed under the bridge since then. So we're all busy. Everybody's busy looking at the current set of facts to make a determination of what issues still remain at this point in time.

Okay, thanks.

Our next question comes from Steven Mead with Banker Capital Advisors.

How are you?

Al, I'm all right. Can you kind of separate the CCI business from the rest of the insurance side and talk about sort of premiums in the other side of the business in terms of pricing and also volumes?

Yes. As we have reported fairly steadily, for the past several years, looking at the major parts of our business, Steve, our trucking business I think, not to brag, but we've done a good job in that we have basically maintained stability on the pricing side. There's been very little pricing deterioration, so all the loses in volume, or the acquisition of volume, which we mentioned before, in this year's first half has been based on the basis of economic activity, but not on an increase in prices or what have you. Home warranty, which is another line which, as we mentioned, is growing for us, also has not sustained any significant pricing issues. The rest of the business, whether it be workers' comp or general liability, which affect our bituminous Companies, our construction business and Old Republic CPG, and a number of manufacturing oriented types of insurances. There is no question that pricing has been soft. It's been soft for the last three years. Perhaps I would hazard a guess that what you are talking about is maybe a 10% or 15% cumulative drop in pricing from its high three years, four years ago. So it has not been substantial, but it's been of some significance. And we believe that we are reflecting that effect in the reserving structure that we impose on ourselves.

Finally, when you look at some other lines, like our general aviation business, our E&O business, and what have you, those lines to some degree, have been affected by new competition coming in. And there has been a greater level of price deterioration in addition to the economic situation generally that have affected volume in a downward manner. And then you have some odds and ends in our business, like our automobile warranty business, which reason would tell you, pricing there has not been an issue, that the issue has been the lack of automobile sales, reduced financing of those sales by virtue of the economy, which has impacted. So you have all those variables. And I'm sure I'm not addressing your question as specifically as you would like, but it's the best answer we can give you, that you have all those variables coming together, which are affecting the volume of business we've been reporting in the last two or three years. Going forward, right now we don't see the makings of any price increase, particularly in the commercial lines in which we are involved. And we believe that any price increase would be further delayed if, as some expect, interest rates should spike up next year or whenever, because then there would be less interest on the underwriting side and more of an interest on what can be done on the investing side of the income statement.

On your investment decision on taking the gains and -- how much of that was a credit consideration on the municipal side and how much of it was just pure kind of yield on the assets?

It was mostly yield on the assets and the fact that, particularly when you are in a consolidated underwriting loss situation, as Old Republic is when you consider its title business, its Mortgage Guaranty business and to some degree our General Insurance business, that taxable income securities are a better deal to offset the underwriting account. I will say to you that there were some considerations in terms of asset quality on the munis, but our muni portfolio at Old Republic has always been a very good quality. Now admittedly, in the types of economic straits in which we and the rest of the American industry finds itself, things have changed to a large degree. I don't need to tell you relative to the credit worthiness of many municipalities and states. But that was not the main consideration. The main consideration was improving the overall yield on all the proceeds we received and gaining better tax efficiency from a consolidated standpoint.

And then, if I could, on the PMA acquisition, the senior people at PMA that are resigning from the Company, what's the rough kind of overhead number or savings associated with their departure?

Well, you are making an assumption which is not there, and that is that top people are resigning. Nobody is resigning. I mean, we certainly are going to be looking at the joint businesses down the road, and that we may take some actions to gain efficiencies, but those actions could affect both the Old Republic as well as the PMA side. But at this point in time, Steve, we don't have any expectation that you are going to see the type of upheaval when it comes to people that you may typically see in other situations.

Then I'm misreading it. I mean the --

What you may be referring to, the fact that the board --

The board and the contracts --

What?

The board is resigning, right?

Yes.

But senior management --

Is giving up its severance agreements.

Oh, okay.

Because -- and the rationale for that is that simply we do not have those at Old Republic as a matter of corporate policy, and they're just adopting that policy going forward.

Okay. All right, thanks.

Yes, sir.

(Operator Instructions). Our next question comes from Bill Clark, KBW.

Good afternoon, guys.

Hi, Bill.

Any idea what percent of your revenues in the title insurance segment are now coming from the Florida market?

I don't have that number for you, Bill. I mean, obviously, it is of some significance, because we did buy, or effect a joint venture for a back of business which at one point in time was accounting as we understand it for some 30% of the Florida market. Now, of course, that Florida market, as you know, has [inaudible; recording skips here]. And therefore even if we have kept 30%, and I think we have, it is a much smaller portion of the overall book at this point in time. But I don't have a specific answer for you, Bill.

The real opportunity there is when Florida [recovers] from its current state.

Okay. And second question. I think last quarter you gave a range of about 18% to 20% of your delinquent loans in MI that were in the HAMP trial. Given the cancellations and, as you said, the purging of some trials that probably weren't going to make it to a permanent mod, do you know what either number or percent of your delinquent loans are still in the HAMP trial as of quarter end?

My guess is that purge of the essentially non-active HAMPs probably knocked out about half of them. But I don't think that has any material impact. As we've always said, we've never booked any recognition of any benefits from these HAMP programs. And we always assumed a low level of conversion of the ones in the delinquent population. But what we do think will occur is those that do convert and actually become essentially a cured HAMP, we think there's a high probability that those will stick, or a significant number of them will stick, because the borrower really did have to go through quite a process to qualify for that modification.

Okay. Rough guess, would it be in the range of maybe 10,000 that are still --

Yes, it might be a little less. Again, I think it knocked out about half of them so if it was in that 18% to 20% range, which it was toward the end of the year, it's probably closer to the 9% range, plus or minus now.

Okay, great.

Now some of those have merged into these other modification programs that Fannie and others have come out with. But I don't have any numbers on that, unfortunately.

Great. All right, thank you.

Our next question comes from Mike Rendell with Northland Capital Markets.

Yes. Thanks for taking my call, guys. Just a couple of questions. One, delinquencies at the end March were about 112,000, and they fell to 96,000 at the end of June. I think you mentioned a commutation or something, but can you just -- what was the core drop if you back out the number that dropped based on the cleanup?

I think the way to look -- the best way to look at that in the press release in the supplemental data when we show you the delinquency statistics, is really the core trend that you ought to look at is in the traditional primary line. And you can see that had dropped from about 86, 500 in the fourth quarter, to 84,500 to about 80,300. Now, the reference to the cancellation of the pool contracts is a big piece of the drop in the bulk delinquents that your see there. So a significant portion of those have come out with the cancellation of these contracts. You might imagine the cancellation of the contracts are generally on the highest risk pools. So you get a big chunk of the delinquents out. I think the embedded second quarter delinquencies on the pools that remain were down just ever so slightly. So there was no unusual movement underneath there.

Okay. And do you have any estimate of what percent of your delinquent program would be in a non-HAMP modification program?

No. I wish I did. But there's just not. It was a real effort for the industry and lenders to get good reporting on the HAMP modifications. I don't have any real way to estimate what percentage. I would hope it's a large percentage, given all the modification talk, but there's nothing I could estimate for you.

Okay. And then Al, a quick question for you. I think you mentioned in your prepared remarks that you sold part of your interest in one of the other Mortgage Guaranty companies. Did you guys disclose which Company you sold that in?

No, we did not.

Do you intend to disclose that?

Well, I think it's going to be a matter of record. It happened to have been MGIC.

Okay, thank you.

At this time we have no further questions. I would like to turn the call back to our speakers, Mr. Zucaro, and Mr. Nard, for any additional or closing remarks.

Chris, I think we've covered the waterfront as to all the key variables and the key points about our business. So unless there are other questions, we have no further comment, and, again, as always, we appreciate your interest in joining us for yet another quarter's review.

Thank you, sir. With that, we will conclude today's conference. Thank you for your participation. You may now disconnect.