Scott Eckstein - Investor Relations, MWW Group Aldo Zucaro - Chairman and Chief Executive Officer Scott Rager - President and Chief Operating Officer Karl Mueller - Senior Vice President and Chief Financial Officer Rande Yeager - Chairman and Chief Executive Officer, Old Republic Title Insurance Companies.

Vincent DeAugustino - Keefe, Bruyette & Woods Stephen Mead - Anchor Capital Advisors Christine Worley - JMP Securities Ron Bobman - Capital Returns.

Good day, and welcome to the Old Republic International third quarter 2014 earnings conference call. (Operator Instructions) I would now like to turn the conference over to Scott Eckstein with MWW Group. Please go ahead, sir..

Thank you, operator. Good afternoon and thank you for joining us today for Old Republic's conference call to discuss third quarter 2014 results. This morning, we distributed a copy of the press release. If there is anyone online who did not receive a copy, you can access it at Old Republic's website, which is www.oldrepublic.com.

Please be advised that this call may involve forward-looking statements as discussed in the press release dated October 23, 2014. Risks associated with these statements can be found in the company's latest SEC filings.

Participating in today's call, we have Al Zucaro, Chairman and Chief Executive Officer; Scott Rager, President and Chief Operating Officer; Karl Mueller, Senior Vice President and Chief Financial Officer; and Rande Yeager, Chairman and Chief Executive Officer of Old Republic Title Insurance Companies.

At this time, I'd like to turn the call over to Al Zucaro for his opening remarks. Please go ahead, sir..

Well, thank you. And thank you to everyone and welcome to our regular quarterly review of Old Republic's business. As was just indicated, we've got four of us here, who will handle various parts of our business segments.

So I'll start the ball rolling, so to speak, and say a few words about the consolidated picture that you see in the in the news release this morning, and provide a little more color relative to our run-off operations in the mortgage guaranty and consumer credit indemnity business.

The latest quarter's results from a consolidated standpoint were basically a repeat of what has transpired in this year's first two quarters as well as several, I might say, recent and earlier quarterly periods of 2013.

The General Insurance business we think performed very well, except for the ongoing underwriting difficulties we've been experiencing, along the workers compensation and general liability lines in particular.

As those of you who listen to these calls and read our stuff, know that we've been addressing this issue in the last couple of years in particular, but safe to say that these coverages have indeed presented us with challenges. This is our final resolution has alluded us much longer than we had thought.

But in the event, Scott Rager will have more to say about the outlook on these two lines in particular, in a few minutes. The Title business is basically catching us breath, I think, and this after experiencing a couple of high performance years in '13 and '12.

And we think that as the housing and the economy generally continue to be fixed, to be improved, that our Title business will benefit and reach up to a much greater earnings power. Looking at the RFIG run-off business, it produced results in this last quarter that were pretty much in line with our expectations.

The most recent quarterly trends, except for this year's second quarter when, you may recall, we had a major litigation settlement, which came in way in excess of carried reserves for the CCI portion of the run-off, that the outlook for this business looks pretty stable for the time being.

As we reported during last quarter's conference call, the MI portion of this RFIG segment is basically stabilizing within the scope of unexpected 10 year run-off period, which right now we think we'll probably extend to 2022 or thereabouts.

So as a result, this line should experience, we think, a gradual decline in premium volume, as the book of inforce business continues to peel off. If you again look at some of the numbers we show in the statistical exhibit on Page 6, that's the exhibit we post on the website in morning of our earnings issuance.

If you look at that page, you'll see that the net risk inforce has declined by about roughly 45%, since we placed the business in run-off in August of 2011. Now, on a quarterly basis, since yearend 2012, that net risk inforce has been dropping by an average of roughly 5% each quarter.

And as a result of that, the good thing about net risk evaporating, so to speak, is that it does reduce or eliminate potential claim exposures down the road. Speaking of claims from a claims cost standpoint, the quarterly trends also continue in a positive way for the mortgage guarantee business.

Claim ratios have been declining fairly steadily since yearend 2012.

And this is the case, I think whether we look at these ratios, as they are reported in the financial statements or whether as we point out each quarter, whether we factor out the embedded reserve redundancies, which have emerged in variant degrees of the mortgage guarantee line for seven consecutive quarters now.

Every quarter in the last seven quarters we've had, some wobbliness to it, but nonetheless a fairly steady decline or increase, I should say, in reserve redundancies.

So in this regard, I might say that without benefit of these redundancies, the claim ratio has been well below 100% in two of the last four quarter, which would mean the fourth quarter of 2013 and then this latest quarter.

And of course, the last time we had loss ratios below 100% was in the early months of 2007 before the onset of the great recession. Now, we think that all of these trends occur really well. We continued stabilization of the MI portion of the RFIG run-off.

The better results we're experiencing for the past six consecutive quarters are leading to the restoration and helping to restore a positive regulatory capital level for the combination of our three mortgage insurance company subsidiaries.

So particularly, if we include the so called statutory contingency reserve, which is an arbitrary reserve that mortgage guarantee insurers must set up, and it usually amounts to 50% of each periods or in premiums, that if we include that statutory reserve, which particularly for a run-off book of business such as this, should not be necessarily down the road, that our statutory capital resources at the end of September amounted to $195 million dollars.

And on an apples-to-apples basis, which takes into account the elimination of the payment of the deferred payment obligations that were in claim reserves, and were effectively counted as part of capital in the past several quarters since 2012, that when we eliminate that the positive regulatory capital is up almost 333% from the negative balance of about $83.4 million that we posted just one year ago at the end of September '13.

I might say that roughly half, maybe 55% of the swing of $278 million from a negative number to now a strong positive number, that roughly 55% has emanated from the statutory earning that we've been posting as well as the $125 million that we put up, by way of a capital injection in June of this year.

So when you wrap it all together, given our strongly held view and our expectation that for a continuing, though somewhat slower emergence of earnings from the MI portion of the run-off, we think that it seems to be a pretty reasonably safe bet, that there should be a sufficient part of capital at the anticipated end of the run-off period in 2022, as I mentioned before, for us to at least recover both the 2008 capital support additions of some $280 million that we made between early 2008 and in June of this year.

So said another way, we think that what we have by way of statutory capital now, plus the earnings that we anticipate in a reasonably conservative fashion between now and the end of a run-off period in 2022, should be more than enough to enable us to recover these capital addition.

And that would be a good outcome for the mortgage guarantee business run-off, particularly when you consider that we have paid and continue to pay $0.100 on the $1 of all legitimate mortgage guarantee claims presented to us. Now, with respect to consumer credit indemnity book within this RFIG run-off that coverage posted a loss of about $12 million.

As you see on the Table B, I think it is on Page 3 of the release for last quarter. And this is of course a significant turn from the much greater loss that was registered in the second quarter of this year.

And as we reported in July, when we issued the second quarter earnings release, that loss was driven mainly by final settlement of some litigation matter, obviously for an amount that was significantly in excess of reserves that we had previously posted for that exposure.

So that being the case, for the time being, the CCI run-off seems to be reverting to that pre-settlement period. This means that we are currently collecting renewal premiums and paying all legitimate claims, on one hand. And on the other hand, we are feeding the lawyers to litigate a couple of remaining commercial disputes in the CCI area.

The most significant dispute we have, which we have steadfastly reported on in our footnotes, et cetera, over the last number of years is between ourselves and one of this country's largest, so called too big to fail banking institutions.

As I said, this is fundamentally a commercial dispute, which stems from our findings of systemic misrepresentations and outright fraud committed by one of the institutions subsidiaries, in particular to secure CCI coverage from Old Republic, in past years when we were actively engaged in that business.

Now, as in all litigation, there is never a certainty of outcome, as you know. But in this particular instance, we are quite confident that that leaving aside the expensive litigation, what I refer to as feeding the lawyers, then we think our position will be litigated as soon as we're able have a meeting of the minds with the other side.

I think that's about the extent of my comments on the run-off business. And so as we indicated before, we'll turn the meeting over to some of our other associates here, who will take a peak at various other parts of the business. And we'll start with Scott Rager, who will address our General Insurance business results..

We will now discuss the General Insurance Group results, exclusive of the CCI product impact on those numbers. Net premiums earned were up nicely for the quarter and year-to-date at 9.5% and 9.4%, respectively.

And this trend will likely continue for the remainder of the year, as we benefit from new business opportunities in the many parts of our operations. Those opportunities coupled with increasing economic activity among our customer base and moderate rate increases is supportive of premium growth at this level.

Positive premium trends are occurring virtually in all underwriting operations within the group, but particularly accentuated in our risk management, motor carrier transportation and construction business insurance.

With respect to the construction accounts, premium growth is mostly driven by increased rate levels and organic growth among existing accounts. On the claims side of the ledger, as the release indicates, we continue to experience increased loss cost, particularly in workers compensation and general liability.

The increased loss ratios in 3Q for those lines are the result of case reserve development, as has been the case for the last couple of years. Results over that interim have steadily deteriorated in those lines as indicated by the statistical exhibit posted.

In general, higher claim costs are most pronounced in the middle markets and construction accounts and much less so in the loss sensitive and adjustable rate products.

As to the latter insurance have a greater and very direct financial interest in controlling loss costs through insured deductibles or retention levels or even alternatively other loss sharing mechanisms.

Such insured participation support our long-term strategy of moving our underwriting focus away from so called main street rate sensitive products to insurance programs and products that enable prospective or retroactive rate adjustments based on individual customers claims experience.

As for results in our construction book of business, we still believe that the effect of the Great Recession and the slower recovery in the commercial construction environment have definitely impacted claim cost to a greater degree than another markets in which we participate.

Diminished opportunities for light duty and return to work status continue to drive the long-term trends and claim cost. As claim cost escalate, obviously more adequate rate levels are necessary to address that environment.

We're implementing necessary underwriting and primary strategies in these regards and have every expectation of progress in the near-term. All-in-all, workers compensation and general liability loss ratios are certainly not where we want them to be.

Results can vary quarter-to-quarter, but our emphasis is on building quality books of business that deliver over time. That's our strategy and we're actively managing toward that end. In a nutshell, and as we've said before, the expected loss ratios and workers compensation and general liabilities should moderate over time to more historic levels.

The expense ratio at 22% for the quarter and 22.8% year-to-date is a result of increased writings and our continued efforts to efficiently manage the business as a low cost producer.

Looking ahead, we expect good steady growth for the remainder of the year with operating ratios moderating as to our strategies -- as our strategies to address the issues discussed are more fully implemented. Those are my remarks. So now, I'll turn the discussion over to Rande Yeager..

Thank you, Scott. The Old Republic Title business continued to build its profit basis share and has best of the second quarter of 2014. These in return had shown a significant improvement over the first quarter. As reported this morning, the earnings were positive at $28.2 million. Just a little bit about our market here.

While it bounces up and down, on a quarterly basis, we're up of slightly this year and expect to end up the year a little bit ahead of where we were last year, at somewhere just over 15%. Real estate activity continues to be slow.

This year refinance activity is down about 60% and residential purchase money transactions were down about 13% in the latest reports compared to 2013. In the latest quarter, our commercial business continued to grow. We place a great deal of emphasis on this area from both intellectual capital and technical infrastructure standpoint.

And it's really paying off for us. There is not a great of optimism currently that there will be a quick turnaround in the real estate market, but in the long-term, interest rates could tick up slightly, but not enough to deter many purchase money transactions, which is a good thing.

The factors affecting the purchases of homes are much more related to getting first time buyers into the market, as well as those who may not have perfect credit. This will be largely dependent on lenders feeling comfortable with any rules affecting QM, which are Qualified Mortgage standards being established on a national scale.

As a company, over 70% of our Title premiums and fees are currently coming from the agency side of our business, because expenses in this segment are highly variable. This allows us to maintain a fairly consistent expense ratio, profit margins.

And direct operations tend to be more volatile and are harder to manage in down markets, but overall our product distribution strategy has been effective in bridging the peaks and the valleys in consistent real estate market. Our corporate philosophy throughout Old Republic's holding company system is to manage for the long run.

The strategies we employ are effective for maximizing profits in the near-term, and as well, they provide for an optimistic future. Temporary market setbacks we're experiencing are not precluding us from staying the course and building upon the success that we've already had.

I think that pretty well summarizes us and with that I'll turn the discussion over to my associate Karl Mueller..

In this morning's release, we reported that the size of Old Republic's balance sheet in total remained largely unchanged from the second quarter balance with consolidated assets reported right at $17 billion. The cash in invested asset balance of $11.1 billion is down slightly from the second quarter by virtue of several contributing factors.

First of all, as Al mentioned during this comments earlier, in July, we paid approximately $657 million to our policy holders for the settlement of all of the outstanding mortgage guarantee deferred payment obligations or DPOs. These funds had been held short-term investments through the end of June, in anticipation of the July payment.

This was partially offset by the receipt of debt proceeds from the $400 million debt offering that was completed recently in the month of September. And finally, the fair value of the overall portfolio decreased slightly from the levels that were recognized at the end of June.

Nonetheless, the credit quality of the portfolio remains high within overall A-rating, and this is unchanged from the most recent yearend as well.

As indicated in the release, investment income rose roughly 9% to $86 million for the third quarter, and by 7% to $254 million for the first nine months of 2014, by comparison to the same periods a year ago.

The increase resulted from a gradual upward trend in the yield on the fixed income portfolio coupled with the benefit from a greater allocation of the overall portfolio to higher yielding common stocks of blue chip companies.

Consolidated claim reserves declined by approximately $613 million during the third quarter by comparison to the June balances, principally due to the payment of that mortgage insurance DPO that I just mentioned.

And on a year-to-date basis, the overall claim cost have developed essentially even with the prior yearend consolidated loss reserve balances. By contrast, the company posted a modest favorable development for the same period during the 2013 first nine months.

The most significant contributors to this year's, well, I would say, less favorable reserve development includes the CCI claim settlement noted in the second quarter, and as Alan talked about earlier. And a further escalation of prior-year's workers compensation and general liability claims, also as Scott mentioned during his commentary.

As indicated in this mornings release, Old Republic recently issued $400 million of 10-year senior notes at a cost of [ph] 4.078% interest.

We routinely monitor a series of metrics to evaluate this efficiency of the parent company liquidity and as we've discussed on previous calls, we continue to maintain sufficient liquidity at the ORI parent company and non-insurance company subsidiaries to meet our normal recurring obligations, even if you exclude the most recent debt proceeds.

However, overtime our liquidity has fallen short of some of our longer term objectives.

Therefore, the primary purpose of raising these funds was to enhance the parent company liquidity, to provide the financial flexibility, to add capital to our insurance company subsidiaries as needed, and to fund other growth opportunities as they arise in the future.

Until such time as these funds are redirected, the net proceeds are held in a non-insurance investment company subsidiary and they've been deployed to earn a reasonably secure after-tax return that is in excess of the post-tax cost of the new debt.

As a consequence of this recent debt issuance, the debt to capital ratio rose at the end of September to 19.7%. This is still within acceptable parameter set forth by the rating agencies to support our current financial ratings.

Prospectively, we still expect the $550 million convertible debt issue to convert to common equity prior to its scheduled maturity in March of 2018, so that on a pro forma basis, if you were to assume conversion, the debt to capital ratio would be reduced to 8.5% at September 30.

Shareholder's equity at the end of September was $3.9 billion or $15.16 per share, a decrease of $0.13 per share from the end of the second quarter. On a year-to-date basis book value per share has increased by $0.52 or roughly 3.6%.

And together with a book value based cash dividend rate of return of 3.8%, the total year-to-date book returned to our shareholders amounts to roughly 7.4% through the first nine months of this year. Well, they are the highlights of our current financial condition. So at this point, I'm going to turn the call back to Al for any closing remarks..

Well, again, none of us feel obviously that these are the best returns that we would have hoped to publish in this quarter or year-to-date period for that matter, but I have to say that clouds are parting over Old Republic. We think that the worst of times, which we experienced in the financial guarantee area, in particular, are over.

We're certainly not staring at an abyss as all of us who are in that business faced back in 2008, '09, and '10, in particular. We think that the problems we have in General Insurance particularly in the long-tail lines of workers compensation and general liability are very manageable, surmountable.

It just, as I said, as Scott mentioned before that it's taking us a while longer to resolve, but resolve them, we will. And as a result we think that much better days are ahead for Old Republic's future on behalf of both policyholders and our shareholders. So having said that, we will open it up to any questions, that maybe out there..

(Operator Instructions) We'll take our first question from Vincent DeAugustino of Keefe, Bruyette & Woods..

I guess just to start, I was hoping to revisit the workers comp in general liability areas, in just terms of thinking about the loss cost improvement expectations.

And I know nothing is going to kind of move rapidly here, but I'm kind of curious about this quarter, one particular, in the loss cost side kind of forwarded the expectation if we go back last quarter for the improvement.

And then maybe if we could discuss, looking out if this is two or three quarter progression or if this is something that's going to be a year or two?.

Yes, obviously, we don't manage the business quarter-to-quarter, this is bounced around, as you could see the results quarter-to-quarter as they are available, you'd see them year-to-year, quarter-to-quarter they kind of bounce around and do what they're doing.

Well, we think we're doing everything we need to do in terms of approaching the issues, in terms of identifying the issues whether it'd be markets, coverage types, product designs, whatever the case maybe, but we're dealing with each of them.

And we're looking at taking care of it just as quick as we can, but as you know it's a process on some of the stuff, and then it just will take some time. That's all I can tell you at this point in time. We're working at it very diligently as far as we can. We know what we have to do and we're about doing it.

To put it in context, we thought that certainly by the end of this year, we might have had our arms around the entire set of issues that we've been facing in the last three years, but it looks like it maybe a while longer.

But my gut, our gut, is that come this time next year, we should be looking at a better picture certainly than we are looking at now. So little patience, but we'll get this thing looked..

And then from a premium production standpoint, I guess, pretty much, I think everything except for general liability, at least for the three large lines business, so auto and work comp, things were fairly strong, at least relative to my numbers.

And so, I guess, the question there is from a rate trend standpoint, if kind of the good result there on the topline is, if we are seeing any acceleration from a pricing standpoint?.

Well, again, being especially underwriting operation, we have units serving different specific industries with certain different coverage lines, but I can tell you that in some of those areas we're seeing significant new business that attributes to the growth as well as organic growth from a recovering economy in most instances.

And there is rates improvement in terms of enhancements to upgrade. And then another instance, as you may look at it, you may see more organic growth and more rate and less new business, as we're taking care of issues that may have a rhythm there. But yes, rate is definitely a portion of the growth.

That is the one common factor that goes across all lines of our operations..

And I might add, Scott, that again particularly when you look at comp, that such a large chunk of it in an adjustable rate mode, whether it's gradually use of retros or capitals or what have you and that's going to ultimately help the topline, but more importantly, the loss ratio line. So things are not as dire as they may appear..

So the new business growth, I mean that's good to hear.

And so just curious from an opportunity standpoint kind of where you're seeing opportunity for good returns on kind of some of these new business pockets and then kind of what might they'd be?.

Actually we're seeing opportunities in several levels where some of our competitors may have taken positions where they want flat increases or they want to deal with an entire book of business.

Well, that's where we're getting the most shake for the money in terms of we underwrite our business in these specialty units typically on an account by account basis.

So we're getting the opportunity to look at pieces of business within those specialty operations and that people have decided to either exit or to increase rate levels on a flat basis or whatever the case maybe, issue new underwriting guidelines. So we're getting the chance to look at new quality business really across all lines..

And then, Al, just with your discussion around capital, I guess the first question would be is, would any of that imply any opportunity to kind of extract some of the capital as it's freed-up from RFIG, kind of that ahead of schedule? Or if should we look at the recent debt raise, it's just kind of saying, hey, at this point it's just a cautionary approach, and we'll have to wait and see on when that capital from RFIG can be pulled out?.

Well, I guess you recall I could, can I answer that very clearly, and that is that just a sort of recent event that has taken place in our mortgage guarantee business, right. It's only July 1, or thereabouts that we paid off the DPO.

And I think both from our standpoint and just as importantly from the standpoint of the North Carolina Insurance Department, I think all of us want to see maybe three or four or five quarters below our belt before we take any action in terms of capital extraction.

We do think that, it won't be long, but certainly before 2022, it's not inconceivable that we should be able to extract some of that capital. As to the recent capital raise, as you said Karl, you might repeat that..

Yes, Vincent, I think we're looking at the cat book that's committed to mortgage operation to be needed in that operation for the foreseeable future.

So again to address liquidity needs of the parent company to address growth opportunities elsewhere in the business, that was really the driving force behind our decision to raise that $400 million in the form of the 10-year notes..

We'll take our next question from Stephen Mead of Anchor Capital Advisors..

If I could just go back to the workers comp, and in terms of when you were talking about premium increases and also sort of the offset to the higher claims, I was just wondering whether you were getting higher increases in workers comp in terms of pricing versus the other lines of business.

And is that business in a growth mode? Or what is the approach to workers comp from a strategic standpoint at this time?.

From a strategic standpoint, I would indicate that yes, depending on the state, the geography, the operational, all those things that are attended in our specialty operations. It's safe to say that in a general position, yes, we were getting increases on workers compensation.

And again on the operation and the individual experience, well you might see increases in some books we're seeing all the way up to close to double-digits 9%, other areas we're seeing single-digits to perhaps mid-single digits.

And yes, it has grown, but the principal growth in that particular book of business in the last year has been in the loss-sensitive arena as opposed to the rate-sensitive arena..

Yes. I think that's an important point to make and remember and that is that that's what we are pushing to bring, and that is to bring assureds commercial accounts obviously into a greater degree of partnership with us, as an insurance company, so that they are paying attention to loss control as much as we are as an underwriter.

And we think that we can best achieve that, as I say, by in fact making the insurance plans that we offer two-way plan, so to speak, so that if the results are good, we'll give some money back. If the results are poor, we should get some money back ourselves. So the workers compensations fee, it is a bread and butter business for us.

We've been at it since 1920s. And we think we know; we believe, we know what the hell we're doing there. So the point is to fine tune it now, we put on quite a bit of business in the last four or five years, that was pretty much in the standard market area, meaning it was ground up exposure for us.

And that's one of the things we've been trying to do, which is to move more and more of that business to an adjustable rate fashion, as Scott mentioned. It takes time to get that thing fixed.

And we oriented not only geographically, but also in terms of the insurance products that are offered, but we think the fix is in, and we should begin to see the results in fairly quick order.

Fairly quick orders, I said before, I think is probably by mid-year now, as best as we can tell to begin seeing the benefits of these changes that we are making in comp in particular..

And then just on your approach to the dividend as we're still sort of in somewhat of a transition period, but what is sort of the stated approach to the dividend in terms of what sort of relationship to your earnings? What kind of growth expectations over dividend? And what would you say about dividend at this point?.

Well, we've always approached the dividend in terms of making sure that our shareholders get a total return on their investments. And that, as you know, means that dividend is part of that. And growth in earnings is the other part of it. Growth and earnings, particularly, if and hopefully, if it translate itself into a higher stock price.

On top of that, if we're able as we try to raise book value that is also helpful to the shareholders. In terms of the annual payment of dividends, we have been and continue to operate on a 10 year moving average. 10 years to us is a minimum cycle. We've set for years.

As a minimum, you need to take a look at our business over five year cycles, but preferably 10-years cycles. That allows us to go through the ups and down that typically occur in all of our existing businesses now, being whether it's Title or General Insurance or what have you.

So historically we've paid out around 30%, 35%, of our earnings or our average earnings in terms of cash dividends in the last number of years, because of the issues that we faced, obviously, that ratio went up through the strategies, so to speak.

And so now as time moves on and as we readdress the business, you are going to see us gradually revert through this 30% to 35% level. But in the meantime, we're still going to keep our eyes peeled on this 10 year moving average. So my guess is that it's going to take four or five years, before we get to that 30%, 35% payout ratio standpoint..

We'll take our next question comes from Christine Worley of JMP Securities..

Just going back to the development in the General Insurance line, what accident years are you seeing the development from for workers comp and general liability?.

Well, I think as Scott mentioned before, we are experiencing some claims development, and it's going to be spread across multiple year periods. But I would say, generally speaking, 2011 and prior accident years..

Is this the first quarter that you've had development from the '11 book or have you previously experienced that?.

I'm not remembering. Speaking for myself, I don't remember. But I think now, I don't think we've had, because that's still locked in. I would say it's mostly 2010 and prior..

And then some flight in the '11 book then..

'11, '12 and '13, that's right. Those are still pretty much locked in to a Bornhuetter-Ferguson type of loss reserve establishment approach. So the reserve developments are now occurring on clearly for the '10 and prior years..

Yes. Significantly it was attributable to all those years..

And then have you moved your loss picks in those lines at all throughout the year or have those remained fairly stable?.

Well, which year?.

For the current year side.

Sorry, for the current year loss pick?.

Those are fairly stable. And I mean we look at them every quarter, and it takes a significant departure from expected. And again, expected is measured, as I say by the use of Bornhuetter-Ferguson type of a look-see.

And nothing has happened to those three years so far to indicate that the original loss picks or loss established to be IBNR reserves, need to be fixed. So the loss development -- as Scott mentioned before, the loss development that is occurring is driven primarily, if not exclusively, by case reserve developers.

You've got some allocated, so called allocated loss adjustment expense, emergence, but most of it is case reserves that are impacting or penetrating to a greater degree the established incurred, but not reported reserves for some of those years..

So I mean for the '14 book then you've kept the loss picks fairly stable throughout the year. It looks like the adverse has been increasing in degree, as we've gone throughout this year, and especially in this quarter.

I mean, are you guys just sort of trying to get more of a final handle? I know you said that somewhat probably continue to believe through results for about the next year.

But I guess I'm just trying to figure out what's been specifically driving the increase in magnitude of the reserve development throughout the year?.

It's all been case reserve driven. And particularly in the earliest of years, as you know, what get settled now days are some of your lingering hard cases, and more often they are not. What has happened to us, obviously is some of those cases have been settled at a much higher level than the case reserves that were posted on them.

I mean that's been the ball game for us. Try to get our arms around those case reserves. I think we're getting there, but you know, it ain't over until it's over. That's the best thing..

We'll take our next question from Ron Bobman of Capital Returns..

I just had a couple of questions on General Insurance. Good afternoon, bye the way. Commercial auto I think is another bread and butter line. I was just curious how things underwriting profitability-wise are developing there? I don't think I have heard anyone mention it..

As you can see from the exhibit that we provided you with the financials on it, commercial auto is principally made up of overwriting, and [ph] Great West Casualty and some other writings throughout the entities to a lesser degree Old Republic risk management, et cetera.

And they all have a bit of -- most of our writers in the commercial lines that are offering P&C coverages have some commercial auto within that, and its been setting all right now at year-to-date for nine months benefit and claims ratio at 74.5%..

If you look at that exhibit Page 4, I think it is of the statistics. On our website, you'll see that the trucking business has been very stable for us. All the action has been from a loss ratio standpoint in the workers comp and the general liability.

General liability incidentally as you can also readily see, it is a relatively small line from among those three coverages, but it is probably the most volatile, because it contains the largest number of claims that end up in the courthouse. So it will get settled on the steps to the courthouse.

And those tend to be dicey from a case reserving standpoint..

The workers comp challenges, are those more concentrated, less concentrated, in the existing Old Republic work comp book and less so from PMA or vice versa. And I was curious if any sort of geographic concentration to the challenged components of workers comp..

From a geographic standpoint, and I think that's the way we are focused on it, the biggest problems we have on the two coasts, California and New York, New Jersey, Pennsylvania, those states, where we've got some pretty significant traditional comp business. I ground up relatively less of it on an adjustable rate basis.

And that's where most of our difficulties are. And some of that business is just having to find a new home, because it just not easily adjustable. You've got some states and, as you know, California comes to mind, where you've got very large strong state provided funds that act as a low-price mechanism for comp, and that's tough to compete against.

So our approach is to basically move away from some of these areas, because they are not really fixable in a traditional risk transfer basis..

Is the New York, New Jersey, geography is that PMA-centric or no?.

Well, no. I would say, we have strong businesses in both, California and New York, New Jersey and Pennsylvania. A lot of it though, as we indicated before, is written on an adjustable rate basis.

But it's the portion that is not written on an adjustable rate or some sort of alternative market approach that is giving us the indigestions, if you will, in both of those areas..

We'll return to Vincent DeAugustino of Keefe, Bruyette & Woods..

Thanks for talking the follow-up, actually it's I guess a clarification around helping me understand something so. On work comp, so at least from the starting data that we've looked at had 12 months maturity, I was under the impression that IBNR reserves were generally around 70% of your total reserves at 12 months maturity.

And so for me I would have assumed that with the development issues that would have been more IBNR driven, and so just kind of wanted to least reconcile what is this specifically, IBNR versus case and why that wouldn't necessarily be the case? Because that's pending, I guess where we would normally see the pressure would be on the IBNR side and up..

I am not sure of that I follow the question Vincent. When looking at comp here -- but anyway let's say this that with respect to the current years, as you might expect, and the current years in our case would be '14, '13, '12 and '11. Now with respect to those years we do not seem to have any problem with either case reserves or IBNR.

Things seem to be working themselves out well. It's the earliest years. Now, the earliest years, as we've said, the loss ratios are driven primarily by case reserve issues. And what happens, as you know, mechanically on the books of an insurance company is that it's got a certain amount of IBNR for olden years, right.

The idea is that the older the year, the less new claims you're going to have, and therefore the IBNR is a proxy for any potential case reserve deficiency, okay. So what's happening is when you have a case reserve development, as we have been experiencing, it eats into the IBNR a level.

And sometimes it eats into such an extent that the IBNR could conceivably become negative, and therefore you end up having to jack it up. But that doesn't mean that there is a problem with the IBNR, it means that there was a problem with the case reserves. It's a mechanical issue.

But again, the thing to remember, the thing we are trying to stress is that it's been case reserve development for a variety of reasons that have been driving these higher loss ratios for us in comp in particular, NGL secondarily..

Thank you. It appears there are no further questions at this time. I'd like to turn the conference back over to management for any additional or closing remarks..

Well, again, as always, we appreciate very much your interest in joining us in these conversations. And hopefully, you got some additional color on top of the earnings release that we put out this morning.

And on that note, we'll look forward to visiting with you, and I guess it will be next year in January some time, when we put our yearend numbers, and hopefully you'll join us. And hopefully, we'll be looking at a somewhat better picture than we are looking at right now. On that note, we wish you all a good day. Thank you..

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