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, ma'am.

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 on line who did not receive a copy, you may access it at Old Republic's website at www.oldrepublic.com or you can call Liz Dolezal, 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. Risk 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 would like to turn the call over to Al Zucaro for his opening remarks. Please go ahead.

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've seen or have access to this morning's press release so we will not slavishly repeat what 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 are posting are reasonably close to where we expected them to be, at budget time, late last year. However, while they are on target, the make up of them vary somewhat from the expectations we've 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 the 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…

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 but 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 reinsurance 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. That recent decline in the delinquent inventory is reflective really of two things. It's the decline in the number of newly 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 from the release that our new insurance written was down in both the second quarter and in the year-to-date comparison, and I'll 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 up about almost 30% in the second quarter vis-à-vis the first quarter of 2010. As a result of these low levels of new insurance written, we've seen the continued run-up of the bulk business and the high level of refunded premiums related to the rescission activities that the industry has been experiencing. As a result of that,…

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 need much room for improvement. As you've 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 companies, 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…

(Operator Instructions). Our first question comes from Beth Malone, Wunderlich Securities.

Just a couple questions. On the CCI business, it appears, 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 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.

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 its 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, its 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, 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 both our underwriting standards 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 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 you know as an offset to the costs related to past production.

Is your intent to stay in the consumer credit business then?

Yeah. 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 are 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, it's actually going to, you're going to have to report a loss at some point, that you have already recorded the gain?

Yes, I wouldn't think about it that way. 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 would 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 into you know 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 Old 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 that 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 are all busy. Everybody is busy looking at the current set of facts to make a determination of what issues still remain at this point in time.

Our next question comes from Stephen Mead with Anchor Capital Advisors.

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 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 and 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. The 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 a general liability, which affect our bituminous companies, our construction business and Old Republic CPG, and a number of other 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're talking about is maybe a 10% or 15% cumulative drop in pricing from its high three years, four years ago. So it's 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's 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 we'll tell you, pricing there has not been an issue but 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 to 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, and 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 just your investment sort of decision on taking the gains, 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 asset?

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 I got this 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. 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're 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 think what you may be referring to, the fact that the Board…

The Board's and the contracts. The Board's resigning, right?

Yes.

But senior management?

Is giving up, you know, its severance agreements.

Okay.

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.

(Operator Instructions) Our next question comes from Bill Clark, KBW. Bill Clark - Keefe Bruyette & Woods, Inc.: 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. Obviously, it is of some significance because we did buy, effect a joint venture for a book of business which at one time was accounting as we understand it for some 30% of the Florida market. Now, of course that Florida market is, and therefore even if we have kept 30%, I think we have, it is 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. Bill Clark - Keefe Bruyette & Woods, Inc.: 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 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 will stick, because the borrower really did have to go through quite a process to qualify for that modification. Bill Clark - Keefe Bruyette & Woods, Inc.: 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 about it, knocked out about half of them, so it was in that 18% to 20% range, which it was towards the end of the year, it's probably closer to the 9% range, plus or minus now. 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.

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

Yes. Thanks for taking my call guys. Just a couple of questions. One, delinquencies at the end of 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?

Yes. I think the way to look, the best way to look at that is in the press release and the supplemental data when we show you the delinquency statistics, is really the core trend that you have to look at is in the traditional primary line. And you can see that it 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 you 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, 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.

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 have 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.