Old Republic International Corp (ORI) 2010 Q4 法說會逐字稿

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

Thank you. Good afternoon, and thank you all for joining us today for the Old Republic conference call to discuss fourth quarter and year-end 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 at Old Republic's website at www.oldrepublic.com.

Please be advised that this call may involve forward-looking statements, as discussed in the press release dated January 27, 2011. 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, Leslie, and good afternoon and thanks to everyone for joining usin this usual quarterly review of our business. We'll assume, as we always do, that you've have a chance to read this morning's release, and that hopefully it all makes sense to you. As we've done in the past, Chris and I will make some comments to perhaps shed some greater light on the release, and then we'll leave more time for the question and answer session.

Picking up from our last quarterly report, there's very little that's new in our business except for the final quarter of 2010 which, as you saw, incorporates the financial accounts of the newest additional to the Old Republic family of companies. And as the release indicates, the PMA merger took effect as of October 1 of last year, and therefore as required and appropriate, we have included its activities as part of Old Republic from that point forward.

As we have noted in various sections of the release, you can readily see that the merger with PMA added about $2.3 billion or 16% to our pre-merger asset base. And it was also added to the common equity account, pre-merger again, to the tune of about $230 million, or that's about a 6% increase over what we had at the end of September.

The release, of course, also speaks to PMA's premium and bottom line effects in the final quarter of 2010, and based on what we know at this moment, the addition of this business to our general insurance revenue base will be about 20% in 2011. That's the combination of premiums and net investment income, and any kinds of fee income coming from PMA. So, it's a substantial merger for us. It is the -- in historical terms, it is the single largest merger that Old Republic has ever had over all its years.

We think that this merger in particular is very promising in several ways. Most notably, we think it is, and the opportunity that it presents to expand PMA's very viable business westward from it's -- from the long-time East Coast base from which it has been operating since it was founded some 95 years ago. It also provides the benefit to us, through some very important industry underwriting specialties that PMA brings to the table, in particular in the healthcare area, the education area, the retail and wholesale trade area, and in some light manufacturing sectors of the American economy.

So, in combination, all of this we think is very positive and critical from an Old Republic risk management objective standpoint. And those objectives in particular have to do with product line diversification, as well as our capital allocation and protection. Processes.

As you see in the release, consolidated-wise, we experienced again some pretty poor results in the latest quarter, i.e., the fourth quarter of last year, and all of 2010. But fortunately, and pleasurably, the damage was a lot less when we compare that to what we sustained in the same time frames as 2009. As a summary table on the second page of the release shows, the earnings difficulties are still centered primarily on our mortgage guaranty business and on the similar or related consumer credit indemnity coverage that we underwrite in our general insurance segment. While the remainder of our general insurance business and our title insurance line continue to be profitable, both of them nonetheless are performing at levels that are substantially below, we believe, their long-term potential as well as in regard to their past history prior to this downturn that we are currently experiencing.

So, focusing a little more on general insurance, the underwriting ratios that you see there were slightly better in the fourth quarter and slightly worse for all of 2010. And the differences are, however, we believe are sufficiently small to qualify 2010 and 2009 periods and years as substantially equivalent to one another. The CCI line, of course, continues to make the biggest difference in the all-important underwriting part of our business.

Its impact, it's adverse impact was particularly accentuated -- for those of you who follow us, you saw that it became particularly accentuated in the second half of 2010 when we experienced an influx of claims activity from the largest bank with which we've done business for a number of years. As we've reported in the past in regard to that matter, the claims activity has been caused by quicker resolution of claims which could not be validated by that bank, and thus could not have been reserved and paid though us, paid by us prior to their validation.

So, in combination with the remainder of our CCI product line, these claim costs added about 7.9 percentage points to the 4Q 2010 general insurance claim ratio, and 7.3 percentage points to the same ratio for all of 2010. So, if there is any light at the end of the tunnel, so to speak, the 7.3 that we incurred in 4Q 2010 is somewhat lower than what we reported for the prior quarter, the third quarter of the year.

As I believe -- as I recall, we mentioned in our review of the nine-month results, we began to see a little bit of a slowdown in the claim reports from that source, and in the past three months or so the reported CCI delinquencies, as well as the number of claims that are still awaiting validation, have been trending down fairly consistently. So now, I think we need to see this trend continue for the current quarter or so before we conclude that this particular storm is moving out to sea, so to speak.

If we leave aside the CCI product, which is currently inactive in so far as new production is concerned, for the simple reason that we, first of all, there is no demand out there. The credit markets, consumer credit markets that we are faced with, and we don't have a product out there which would address those needs at the present time. So, production today consists most -- exclusively, I should say, of renewals on business that had been written in prior years.

Leaving that aside, the remainder of our general insurance book is performing reasonably well. If you look at the statistical exhibit that we put on our website this morning, concurrently with the publication of the quarterly report released, you'll see that in combination our three largest coverages, and that includes our workers' compensation, and automobile, or truck insurance in our case, as well as related general liability accounts. The combination of those three major coverages continues to produce some very consistent and acceptable loss ratios, which for the last three years or so have reached about 72 points. And that's very much in line, as you see, with the loss ratio for 2010.

So, if you take that level of loss ratios and you add, let's say, 24, 25 points to it to cover underwriting and general operating expenses, you can readily see that the general insurance business and those three lines in particular are producing very good underwriting margins. So again, the main continuing issue with our general insurance business resides not just in the underwriting part of, particularly of the non-CCI business, but the issue is basically a top line issue with respect to which market conditions are not sufficiently propitious to lead us to a more aggressive pursuit on the production side.

As we see it, the American economy remains on a fairly slow growth, which is obviously sapping vitality in sales, and employment levels, in particular. So, if you add to this the perception, and I believe the actuality, that there is a lot of commercial insurance capital and capacity available out there, in combination you have the answer to both our current as well as near-term view of top line trends for general insurance.

Now, of course, PMA's addition to our book of business will provide some welcoming input to premium volume in 2011, as I indicated before. Bottom line-wise, the release shows that the first quarterly input from PMA's activities in the fourth quarter, the loss that you see there from PMA contains quite a bit of noise, I might say, created by such things as nonrecurring merger costs and other charges and investment income differences that are caused by the re-alignment of the two operations.

But if we think that as 2011 progresses there should be a lot less noise again in the combined accounts of the two companies. In terms of general insurance earnings quality, prior year's reserves through year-end 2010, have continued to develop favorably. I might note that the level of redundancy was clipped somewhat by adverse developments on the CCI claims line.

And of course, that's a reflection again of the same issue that we mentioned before, i.e., the fact that we did get an influx of claims in 2010 which we had no basis for anticipating as we closed the books on 2009. And of course, when they rolled through the system it caused a down draft on prior year's loss developments. In terms of cash flow, the general insurance business ended the year within the same range as 2009, which means that it produced about $110 million to $112 million, as I recall, of positive cash flow versus the $120 million or so that was posted in 2009.

That, in summary, represents some highlight comments on general insurance. And so now, as we indicated, we'll pass the phone over to Chris Nard, who will speak to -- on mortgage guaranty and title insurance businesses.

Good afternoon. As you can see from the release, the MI results in this year's fourth quarter improved somewhat from the same period last year, and the year-to-date comparisons also show improvement as well. In both of those instances, when you leave aside the effects of the captive commutations, and the pool terminations, the year-over-year changes continue to be driven by varying claim payment trends, and by changes in the reserve provisions.

On the delinquencies side, total delinquencies declined 32.5% in 2010 when compared to year-end 2009. And in the same year-to-year comparison, the traditional primary delinquencies declined almost 19%. The decline in the delinquent inventory throughout the year is reflective of several things. One, a decline in the number of newly reported delinquents; an increase in the number of delinquencies that cured during the year, as well as the reductions arising from the terminations of certain pool insurance contracts. And also from an increase in the level of paid claims.

With respect to the production side of the business, new insurance written was up just slightly in the fourth quarter to fourth quarter comparison, but down in the year-to-date comparisons. On a positive note, the new insurance written trended up slightly in each quarter since the first quarter of this year, and was up about 7.5% in comparison to the third quarter of 2010. We've seen net earned premium continue to trend lower throughout the year, and that is as a result of several things as well.

One, the low level of new insurance written that we're seeing today continued run-off of the bulk business, which has been accelerated by the termination of these pool insurance, several of the pool insurance contracts. And a high level of refunded premiums related to the elevated level of claim rescissions. But we would expect to see the level of refunded premiums begin to decline throughout 2011 as rescissions become a smaller percentage of the total claim settlements.

That risk in force has continued to decline as well. This again is driven by the fact that the low levels of new insurance written that we're generating are insufficient to replace the risk that's left the portfolio due to refinancing or claim settlements. We would continue to expect the risk in force and new insurance written numbers to be challenged throughout this year as this market continues to stabilize.

While we've had a slight increase in the mortgage insurance industry market share in 2010, for the year the private mortgage insurance industry volumes are down significantly. In the industry penetration rate, I think what we're seeing today is running just under 5%, which is down from a recent peak of almost 15% that we reached in the end of 2007 and in the first quarter 2008. And to add to that, year-to-date through the third quarter, our mortgage insurance business' market share continues to trend down somewhat and is running at about 8.5%.

Now, one of the primary drivers, as we've talked about in the past, of the reduced MI industry penetration rate has been the growth of the FHA's market share. And as we've discussed in previous calls, the FHA has been making changes that will positively impact its performance over time and, by design, begin to moderate their dominant market share. As of early October, the FHA had raised its monthly premium rates and that change has the potential to improve the MI versus FHA price comparison in several areas. And that could support an improvement in the long-run MI penetration rates. But the significance of those changes on the mortgage insurance market share are somewhat dependent on the loan-level pricing policies of both Fannie Mae and Freddie Mac.

For 2010, as we shift gears to the modification side, we've seen about 16,000 to 16,500 loans cure as a result of the HAMP modification program, or other modification programs that are present in the marketplace. We've seen the newly reported HAMPs continue to trend down. And while we would expect that to continue, we would estimate that we'll still see some residual benefit from the program, but we would anticipate that the large increase in the modifications from the HAMP program are behind us.

But in recognition of the need for additional modification programs and opportunities, Fannie and many of the servicers have developed their own modification products that are designed to work with borrowers who, for one reason or another, may not qualify for a HAMP modification.

Last quarter, one of the big news items that we discussed was the reported documentation issues with foreclosures and the ensuing moratoriums that were announced by several of the large servicers. So far through this fourth quarter of the year, as we had anticipated, that had limited impact on us other than extending the time period that loans currently spend in various delinquency stages. This likely results only in the extension of the time the loan would remain in the delinquent inventory, and not result in an increase in the frequency of default for those affected loans.

With respect to our risk-to-capital position, you can see from the release that the ratio among our mortgage guaranty group of companies remains above the 25-to-1 level. And as we've mentioned previously, we continue to operate under a waiver from the North Carolina Insurance Department, which is our stay of domicile that permits us to continue to write business in the flagship company, even when the risk to capital ratio is over 25-to-1. In the event than another state with a maximum risk-to-capital ratio in their statutes feels that they are unable to recognize the waiver from North Carolina, or would not grant us a waiver under their existing statutes, we, like the other MIs, have been granted the ability to write business in a separate subsidiary by both Fannie Mae and Freddie Mac.

So, to summarize, while we've seen, certainly seen improving trends in the newly reported delinquencies and the cured delinquencies, and we also recognize the potential for increases in the MI penetration rates going forward, these positives continue to be moderated by the slow recovery we continue to see in the job market. And what we estimate to be a continued gradual slide in home prices this year, obviously driven by the excess inventory in many markets around the country. So, we expect that those two economic conditions will persist throughout 2011 and contribute to a continued slow recovery in the housing sector.

Let me take a second and segue to Old Republic's title insurance business. Our title insurance business continues to build on the positive momentum that we began to see towards the end of 2009, and in the fourth quarter we posted an $8.3 million profit in comparison to a $1.6 million profit in the fourth quarter of 2009. And on a year-to-date basis, in 2010 our profit of $9.4 million also compares favorably to a $2.2 million profit that we had earned in the previous year.

As you can see from the release, the fourth quarter number was somewhat impacted negatively by about a $4 million charge related to the write-down of a counter party receivable that we've currently deemed uncollectible. Premium and fees in our title insurance business continue to show very strong growth, and we're up 33% over last year's fourth quarter. These gains are largely attributable, and continue to be attributable, to our growth in market share that began as a result of the industry dislocations we saw in 2009, and the success of our joint venture with the Attorney's Title Insurance Fund that we have in the state of Florida.

And as we look to the market share for the third quarter 2010, which is the most recent information we have, share was about 11.2% versus 8.9% in the third quarter of2009.

On the expense ratio side of the business, the expense ratio for the fourth quarter of 2010 was down to 89.6% in comparison to the fourth quarter of 2009 when the ratio stood at 92.5%. On a year-to-date comparison, the 2010 ratio was 93%, which was down just slightly from the 2009 year-end ratio of 93.8%. The claim ratio was fundamentally flat for the quarter and down just a tiny bit at 8.4% versus 8.6% in the fourth quarter of 2009.

Again, we reported last quarter on the foreclosure issues and their anticipated effect on title insurance business, and as we anticipated, we think that the current issues don't create a significant exposure for the title business. And as we said, we think that that exposure will likely be in the area of increased legal expenses, as you work through what may be a wrongly executed foreclosure. But in the unlikely event of a worst-case outcome, the title insurance company could be responsible for the exposure to the new buyer if the property was wrongly transferred. But in that instance, we continue to believe that the policy provisions protect the Company. We certainly continue to monitor these issues closely, and will stay on top of this throughout the foreclosure processes.

We continue to be looking back, continue to be reasonably satisfied with the progress we're making in the title insurance business, and continue to be optimistic as we see this business continue to stabilize. With that, I'll turn it back over to Al.

So, let's see. To conclude this part of our discussion and move on to the Q&A portion, which I suspect most of you are much more interested in, let me just say that the Old Republic balance sheet remains in very good shape. We've just about completed a revamping of the PMA investment portfolio to align it with our own pre-existing system-wide preferences, and in the post merger period to eliminate any asset and liability correlations that existed.

As you can see, also in the -- I think in the balance sheet we submitted, our equities represented just about 6.5% of our investment portfolio at year-end 2010. That's up from about 5% or so at the end of 2009. And substantially, if not all of the increase is due to market appreciation during 2010. Now, again, however a big chunk of that equity portfolio at both year ends, '09 and '10, consisted of two significant investments we have had beginning in 2007, in what I believe are the two largest publicly-held mortgage insurers in the country. As we have reported consistently since then, since we bought those two issues in 2007, lets say and some of it in 2008. Part of our thinking was that the mortgage guaranty industry would right itself by 2010.

Now, as matters have turned out, of course, we were dead wrong in that assessment, and those investments, of course, have depreciated significantly, as you can readily see in the table. At this juncture therefore, for what it's worth, we think that the results of the mortgage guaranty business, including our own, are not likely to be written in black ink before 2013. And this current downturn is, obviously, the most damaging since the industry was reinvented in the 1950's. And therefore, it stands to reason that it will likely take quite a bit longer to return to profitability.

If you look at the table on top of page seven of this morning's release, you'll see that in 2010 we reduced those investments in those two MI companies by about 25% on an original cost basis. All of this reduction stems from our sale in the first half 2010 of a portion of the investment in the MGIC position. That sale took place at a time when we considered that the MGIC stock was -- appeared to be at least at a temporary high. And the timing, we thought, was convenient for us to offset a taxable loss from those sales against taxable gains we had elsewhere in the portfolio.

So, the transaction was driven by both tax considerations on the one hand, as well as an ability to reconfigure our portfolio -- at least part of it, toward more of a taxable bond portfolio. Which is what we invested the proceeds from both the MGIC sale, as well as the other securities that we sold. Which were primarily tax-exempt, which do not fit with the current and foreseeable tax position of Old Republic on a consolidated basis. So, that's the long and short of the reasons for the sale that you see and that we reported recently in one of the necessary SEC filings with regard to our ownership of the MGIC stock holdings.

The PMA transaction, again it's the effects of that merger when we revalued assets and liabilities as we must in accordance with GAAP requirements. As a result of all those adjustments to the balance sheet, the consolidation did not result in very much goodwill being attached to our own resulting consolidated balance sheet. So the other bottom line is that we did not dump any water, to speak of, into the shareholders account. On the liability side of the balance sheet, just as I indicated before relative to the general insurance business, we feel very comfortable that the totality of our consolidated claim reserves that have been posted over time, that they are likely to play out positively and not debilitate 2011 results.

Our consolidated debt level, which now includes about $130 million that we picked up through the PMA transaction still stands at a relatively low 11.5% of equity. And at this level, particularly when you consider that to some 75% or so of that total debt is represented by a 2009 issue of convertible securities that are likely to convert into equity beginning in 2012, that we have quite a bit of flexibility in managing the consolidated capital account. That means that we can safely add a reasonable amount of debt to our overall mix of capital as we may require for business and sundry reasons going forward.

Let's see. That's about it. The extent of our comments, for Chris and I. So now, we'll open it up to your questions.

Thank you very much. (Operator instructions)

Our first question will come from Geoffrey Dunn, Dowling & Partners.

Good afternoon guys, how are you?

Good afternoon, Geoff.

Two questions on the MI side, Chris. First, I think North Carolina is the only one who's come out and actually indicated some sort of ceiling, indicating 30-to-1. Can you talk about how you, what kind of conversations you've had with them, now that you're approaching that level?And also, can you comment on the reserves this quarter? Did you make any adverse adjustments to your rescission or modification assumptions, and could you quantify the impact on the reserving?

Well, let me give you a feel in general for the states and the way the waivers work. Generally, what I'm familiar with is, you don't have, I don't know, a trip wire. You have check back points along the way, versus any metric that is a set-in-stone metric.

I think one of the things that got us to the industry to where they were, is a hard, set-in-stone metric of a risk-to-capital ratio. And I think we were sufficiently successful in showing people that, in this business as it recovers, those hard, set, trip wire metrics -- whether they be risk-to-capital ratio or any other metric that an insurance department would watch, really is not the way to manage it. You have to look at all the metrics, the trends, and how they work together. And I think I can reasonably, confidently say that's how most of the states are doing it.

On the reserving provisions, as I said early on in the prepared comments, we would think that the rescission effects begin to moderate through 2011. As we've all talked about, the high-risk books really came out of the end of "05, '06, '07, and unfortunately, to some extent, the early part of 2008. To the extent that you see misrepresentation surface, generally in the first 18 months or so. Once you get 18 months past the end of the high-risk books,you're going to begin to see the rescissions drop off. And as we do that, we would manage the reserving metrics accordingly with our expectations.

Specifically, did you change that metric this quarter, adversely affecting your provision?

Yes, we would look at it each quarter, and when we anticipate that the claim settlement percentage, the rescission percentage of claim settlement would decline, we're going to ratchet down that amount. So, that's the general trend. I can't tell you off the top of the head if we made that adjustment this quarter or not.

Well, don't you think it's kind of --

The trend, Geoff, has obviously been to move that thing down. I just don't remember the quarter-to-quarter change.

I understand. I've just seen several of your peers do it, and obviously, when those adjustments versus expectations cease, we can see dramatic improvement in the occur. That's why I asked.

Absolutely, the trend has been to moderate it down.

As you know Geoff, our usual practice in terms of disclosures is that if something is material, we will so state. And the fact that we haven't said anything is that we have viewed whatever adjustments we've been making there as being run of the mill, and not worthy of any particular attention.

Okay thank you.

Next we'll hear from Beth Malone, Wunderlich Securities.

Thank you. Good afternoon. I have a couple questions. Following up on the rescission, just so I think I try to understand what you were saying, Chris, that -- should we assume that rescissions, that there was a bulk of rescissions that occurred and now they're going to slow down just because of the nature of those types of policies that are vulnerable to rescission, or early in this process?

Yes. The only thing, Beth, I'd disagree with -- I wouldn't call it a bulk of rescissions. It's been running at an elevated level for the last several years. But if you want to think back to the time frames I gave you at the end of 2008 -- or the middle of 2008 was really the end of the books that had high percentages of misrepresentation. If those worked their way through the system, you'll see this thing begin to trend down.

Okay. Okay. So, was that what influenced the level of results for -- was that a significant impact to the level of results for the mortgage insurance in the first half of 2010? Because in the second half, obviously, we saw a significant increase in the loss ratio for the book of business compared to the half.

Well, I think if you're looking at the loss ratio, Beth, you have to think about the impact of the decline in the premium, the net earned premium. So, I'd look at it by splitting out the premium in the loss picture.

All right, so those two combined, then. And then, when you talk about the FHA changing some of their metrics, what's the timeframe of when you can see the benefit of that to your own business? Does it take a 12-month period, or do you see some of it now?

The thing I added to my comments today was that -- to really see there's two moving parts to the MI execution. There's the cost of the insurance execution against the FHA, but you also have to add in the cost of the conventional financing, which -- you can think of it as the MI premium plus the loan-level price adjustments from the agencies. So, you can get an increase in premiums from the FHA, which would on its face make the MI execution more competitive. But if you get a corresponding increase in the loan-level price adjustments from the agencies, you'll negate the competitiveness that you gained with the increase in the FHA rates.

So, what we've seen to date really is a move with the GSEs, where the loan-level price adjustments recently ratcheted up somewhat on the announcement of the FHA price increase, which leaves us, in some buckets, in the same spot that we were in the beginning of the year. So, we've seen -- the FHA's made a lot of other adjustments just besides pricing that I think will benefit us in the long run. But the change that they made pricing-wise in October somewhat mitigated by the increase in the Fannie and Freddie fees.

Okay, so it neutralizes it. When you talk about improvement, some of the fundamental improvements you've seen in the market, like the fact that you're starting to see fewer new delinquencies reported, and that the cure rates have shown some modest improvement. Those two factors should lead to -- my understanding is, should lead to a better mortgage insurance environment than we've had in the past. So, if that's the case -- is that the thing that we're looking for in 2011 to see a fundamental improvement in the loss ratios in your mortgage insurance business?

As I've said in the past, we've seen a good trend in the decline in the newly reported delinquents for an extended period now. And we saw in 2010 the beginnings of an improvement in the cure ratio, but we need to still see a continued elevation in the cure ratios before you really begin to see material improvement. So again, end of the year 2010 to end of the year 2009, cure rates were up, but we still need to see those increase before you see markedly improved results in the MI space. Let me just add this, Beth, and Geoff, others. I think one of the issues here is that whenever you see improvements, and we do expect long-term improvements going forward in the mortgage guaranty business, you have to consider the fact that it is a long-term product. And that therefore the improvement you get in premium rates and quality of underwriting reflects itself over a much longer period than is the case, let's say, with property and casualty business, where you can dramatically change rates in the property casualty business on a one-year policy and get gratification from that the following year, or the following 12 months. As the new product rolls through the system.

In mortgage guaranty, typically -- in any situation, any year, the amount of premium that a mortgage guarantor books that relates to new production is very small. And that's what delays the recognition of the betterment that you've had in underwriting standards, or pricing, or what have you. It's important to keep that in mind. That's why we keep saying it's going to take a long time for this business to fix itself, because even if you start today, and even if housing were all of a sudden to come out of the shoot real quick so that we would have great big new production, it would take a long time yet to get the benefits of that.

(Operator Instructions) Our next question will come from Bill Clark, Keefe, Bruyette & Woods.

Good afternoon, guys. Was there anything specific that caused increase in the average paid claim in the quarter, and how much of a factor was that in the increase in the overall level of paid claims for this quarter?

That average paid claim number -- I don't have the supplement in front of me, but if you look at it, I think that number has been fairly jumpy. Over the last several quarters it's gone up and down. We think that the general trend once you get out of the jumpiness is down because the higher risk loans in the portfolios -- the reduced stock, the heavy West Coast production, that went to claim earlier in this cycle, so we think the trend in bias is towards that average claim amount to very gradually trend down. Again, you can get some odd movements on a quarter-to-quarter basis. But again, that's really what we're seeing there.

Okay. And second, there's been a lot of discussion in the marketplace lately about how private MI fits into the QRM definition. I'm wondering if you had any thoughts on where you see those conversations going.

I don't know what will come out. We certainly have been very engaged as an industry and lobbying on the benefits of mortgage insurance, and obviously, the original bill directed the regulation to recognize mortgage insurance. All I would tell you is, I think if this cycle has proved nothing, it's proved that the mortgage insurance business is well-regulated, and there really isn't a better way to credit enhanced high LTV mortgages. So, hopefully that will be recognized when we see the QRM come out here in the next month or so.

Okay, and then a last quick one. Any trends in the most recent months in the title insurance business due to any fluctuations in the interest rates? Is there anything you've seen there, or can you chalk any changes up mostly to seasonality, or things like that?

Well, I think certainly the increase in rates that we saw in the fourth quarter slowed down, obviously, the refinance activity. We see that first in the direct operations. It takes a little longer to see it in the agent operations. But we've been able to somewhat moderate that by the increase in market share that we've seen in the last year or so. But certainly the rate bump would have slowed down the refinance activity.

All right, great, that was all I had. Thank you.

Thanks, Bill.

(Operator Instructions) And at this time we'll take a follow-up from Beth Malone, Wunderlich securities

Thank you. I just had a couple of more follow-ups on technical stuff. First, can you provide us with your total interest expense rate for the fourth quarter?

Well, you saw the debt level, right, and multiply that by an average of maybe 7%, and that gives you the right number.

Great. And can you give us an idea what the tax rate should be going forward?

As I said before, Beth, we have reconfigured our bond portfolio to significant degree by moving both reinvested assets as well as new money into taxable bonds. So, that's going to change the rate to some degree,on the one hand. On the other hand, we don't have a handle yet on, obviously, what's going to happen from an underwriting standpoint in all of these businesses. As you know, the underwriting account gets taxed full-boot at 35%. So, in combination -- I guess what I'm saying is that we don't have a good feel for that.

Okay. And then on the dividend, as you've said in the past, you believe the dividend is important and solid. Can you comment -- should we anticipate that the dividend will remain intact?

Well, we have said, as you know, consistently that the dividend gets looked at every quarter and it gets looked at in the context of one, what we expect our capital needs -- as you know, in recent years our capital needs in the general insurance area have not been extensive, because the reserve account in particular has stabilized. And regardless of what happens, if you have a stable reserve account and still have some growth in your capital account, it gives you additional leeway.

Secondly, the general insurance business, again as we reported, has been the main source of dividends upstreamed to the holding company. And that, as far as we can see, remains in good shape. Finally, we do look at the long-term, as to where the business is going and what again the capital needs are going to be, to determine the rate at which we pay a dividend to shareholders.

But, it's important to remember that while we make annual budget plans and so forth, that that dividend gets looked at both by, obviously, management on one hand but as importantly, the directors every quarter. So I can say to you is that you have with Old Republic this long history. So far, so good. We've been able to maintain it. We hope to keep maintaining it, but no guarantees.

Okay. And then finally, there's been a pretty visible discussion on the Bank of America lawsuit, where they've named Old Republic. Is that the only lawsuit of -- material lawsuit after involving Old Republic and the major banks or mortgage creators?

There's two of them. I would say there's two material, and that would be Bank of America and JP Morgan Chase. There may be others, but upsized, I don't think they would be significant.

As is the case with us, and I believe most other financial guarantors, whether they be MBIA type guarantors or mortgage guarantors, a lot of it stems from the old Country Wide operation that Bank of America bought some time ago.

Do you estimate -- is there an estimated maximum exposure for you on that?

No.

All right. Thank you.

You're welcome.

Currently we have no questions in the queue. I will now turn the conference back over to Al Zucaro for any closing or additional remarks.

Okay, well, that's it for us. We appreciate your interest, as always, as we say.We mean that sincerely, and look forward to our next quarterly visit in a couple of three months. Having said that, we bid you a good afternoon. Thank you.

That does conclude today's conference call. Thank you for your participation.