ORI
#Okay.
Thank you, and again, good afternoon to all.
And as it was just announced, we have several Old Republic senior executives on the line and they'll participate and answer such questions as may come up relative to this morning's earnings release.
With the second quarter's call, we thought we would once again limit ourselves to just a few remarks that I'd like to ---+ what we believe are the most important points in the release, and then we'll open the visit to the Q&A questions, as was just indicated.
So here goes.
The results for the most recent quarter were somewhat below par for both general and title insurance, and the reasons for that were given I think fairly clearly on pages 2 and 3 of the release.
On the other hand, again, as we say in the release, the RFIG runoff business provided the most positive lift to the latest quarter's performance, and to a lesser degree to that of the first half of this year.
Taking a look at General Insurance, it's obviously ---+ it's increasingly clear to us as the year's progressing that we will perhaps probably experience a mid-single-digit rise in earned premiums for this year in its totality, and (inaudible) been the case so far.
Most of this is going to come from organic growth and a bit more from a still small startup underwriting facility that we set up early in 2015.
As we look at it today, we think that the North American economy is likely to be stuck in a slow gear for the foreseeable future, and this means that we'll be looking to strong business retention, a modicum of new business in various specialty areas, and also to the benefits of expanding the segment's footprint from both continuing on geographic as well as from product distribution and type standpoints, in order to achieve that mid-single-digit rise in volume.
In general insurance, our claim costs remain relatively stable from an overall standpoint.
We think they're benefitting from prior periods' rate improvements, which continued to flow through the earning stream, as well as from favorable developments of reserves established in prior periods.
It's noteworthy as you read the release, we think, that this is the very first quarter out of the last nine consecutive quarters that prior periods' general insurance reserves have thrown off a bit of redundancy.
And in this, we're reasonably and increasingly comfortable with the idea that we've finally gotten ourselves back on track as to expect that prior years' loss costs should not emerge adversely and thus impinge upon current year results.
Expense-wise, the release points to some noise, as you read, from the combination of relatively minor expense items that are flowing through the latest quarter's income statement.
In this regard, we think that subsequent quarters' premium inputs for the rest of this year should better cover these what we view as blips in period cost.
Therefore, from an overall standpoint, we're reasonably confident that General Insurance pretax earnings will look moderately better as the year wears on.
And the same thing holds true for title insurance.
The year-to-date comparisons with 2015 suffer a bit from some of the, again, out-of-the-ordinary positives that existed last year.
For the rest of this year, however, we think that the combination of a strong pipeline of orders at the end of June and the prospect of an extended period relatively lower interest rates, as well as a fairly improving job environment in this country, that all of that bodes well for this important core segment of our business.
Finally, with respect to the RFIG runoff, the release points to the key elements that drove its earnings, as well as their impact on Old Republic's consolidated results for the first half of both 2015 and 2016.
And again, save for the continuing saga of a couple of CCI litigations that continue to be resistant to resolution, as well as a remaining exposure of sorts in the mortgage guarantee MI area, the combined runoff operations, we think, are likely to fairly mosey along consistently for the foreseeable future.
Turning to other matters, the consolidated operating cash flows that are disclosed on page 5 of the release are down about 46% year-over-year.
This is driven mostly by the slower top line growth in both the general and title businesses.
And this is of course a main reason for the 1.1% year-to-date rise of the cash and invested asset balance shown on top of page 6 on a cost basis.
And to some extent, this is also impacting the consolidated investment income line shown on page 5, i.
e.
, as cash and invested assets grow more slowly, all things being equal, you can expect investment income to slow down a bit, accordingly.
Balance sheet-wise, there isn't much change in either its composition or its continued strength.
If we look again at the summary tables on page 6, it's readily apparent that the approximate 12.8% year-to-date GAAP basis increase in the common shareholder's equity account came mostly from market appreciation of the securities portfolio, particularly the common equity portfolio.
And of course, this is particularly due to the equities portion, as I say, which reflect the stronger US market performance in the second quarter in particular.
So as we said before, we'll turn this visit over to whoever is listening and address whatever pertinent questions that may be out there, and we've got the talented ---+ my associates here that I'm sure will come up with answers that will be satisfactory.
So, Operator.
<UNK>, you want to address that.
Sure.
Hi, <UNK>.
It's a combination of large deductible business and guaranteed cost business, so when we say large account construction, it would include both.
And as we also say, we're operating in a very competitive environment.
There is definitely evidence in the marketplace of competitive behaviors, and I think as I discussed in the prior quarter or two, we are committed to not chasing business to maintain a top line, and we're willing to let business go that we don't think is priced adequately.
So as we move down the line, we'll continue to respond to the marketplace, and if the competitiveness doesn't improve then we'll continue to maintain our underwriting discipline and let that business go.
Yeah.
We write construction in several of our segments, so when we talk about large construction business, it involves primarily a segment that is currently at about $300 million of premium on a gross written basis.
<UNK>, I would refer back to the beginning of 2015 when we had a press release about a new joint underwriting venture that we were starting.
And so when we talk about the new startup, we also talked about it in our first quarter 2015 conference call.
So this is primarily coming from that operation.
Well, we have ---+ Karl, correct me, but we're all over the lot there.
You know, you're talking $2 million, $3 million here, $4 million, $5 million there, pluses and minuses.
The point we're making, <UNK>, is that when you take all these somewhat different types of expenses that are flowing through the income statement, particularly this past quarter, we believe that that accounts for most of the difference you see from longer-term trends in the expense ratio.
And that's why we also said in the release, as I recall, that we expected that as the year wears on, these, what I refer to as blips, should evanesce to some degree and be absorbed in the overall premium stream of the year.
Hey, <UNK>, thank you.
This is <UNK>.
I don't think we've really had a shortfall on that.
What we have done is, in some key areas, commercial and others, we've increased some staffing opportunities for us.
Obviously, with new people on board, their book of business and follow-up on that is just a little delayed.
A lot of that is just a timing issue for us.
Certain things have hit the bottom line before on the revenue side, so I don't feel there's any shortfall at all.
We're very comfortable about that.
Thank you.
I guess everybody's on vacation in the Hamptons or something.
<UNK>.
Right.
On the commercial auto, we continue to see some severity in that business, and as such, as we talked about for the last few years and as have many in the industry that write commercial auto, we have taken necessary rate action and continue to take that, so we're still getting the necessary rate to offset those severity trends that we're seeing, and I would put those in the mid-single digits.
And different than what I spoke about some of the behaviors we were seeing in the construction area, in the commercial auto area, most of the competition is seeing the same kind of trends that we are, and therefore responding accordingly, and we are able to get the necessary rate increases that we need, so the marketplace is more supportive, certainly, in that line of business.
I think, as we said, generally what's contributing to our top line growth is some moderate, low-single-digit rate increases on average if you average up together all of our lines of business.
So in general and in the aggregate, we are, but the marketplace is certainly competitive.
And as we always say, it varies dramatically by class of business, line of business, geography.
So depending upon those variables, the answer can be very different.
Yeah, thank you.
This is <UNK>.
You know, on that, we follow a lot of the MBA projections on that, and they're saying it should be up to 44% this year but it should drop down to about 27% for 2017.
July started off very, very strongly in that.
As long as the rates stay low, there's still some opportunities in that, and I think we're going to see it fairly solid for at least the next quarter, possibly pushing us to the end of the year.
Because of our agency network, sometimes we're delayed a little bit in the premiums hitting our bottom line.
It should slow as 2017 goes if you follow the projections.
Okay.
Well, thank you.
Appreciate everyone's interest in Old Republic and your attendance at this visit.
And so we'll look forward to the next one in a few months.
You all have a good afternoon.
Thank you.
