It is a "no win-no loss" proposition for shareholders if Old Republic International retains its private mortgage insurance business or goes ahead with the plan to recapitalize and spin it out.
The company is not giving anything away, chairman and chief executive Al Zucaro states in response to a shareholder's question during the company's 4Q13 conference call.
ORI is focusing on policyholder rights in making this business decision, Zucaro says. Investors in insurance companies as well as banks have to realize their interests are secondary to policyholders or depositors as the case may be, he continues, according to a transcript of the call obtained via Seeking Alpha.
An attempt in 2012 to spin-out Republic Mortgage Insurance Corp. and other run-off lines failed because of shareholder opposition.
Any profits would have to be reinvested in the new company because right now RMIC is not solvent if it did not have a deferred payment obligation, Zucaro says.
At the start of the call ORI says it should announce in the next several weeks its progress on raising capital for RMIC and then spinning it off.
ORI plans at the start to maintain "a small minority interest" in the mortgage insurer but at some future date it plans to sell that interest, he says.
The DPO is currently $550 million. It was started in January 2012 when North Carolina regulators placed RMIC under supervision and ordered half of every $1 in claims to be held in reserve and treated as statutory capital. But with regulatory approval, the company has the funds in hand to pay off the obligations, Zucaro says.
ORI is reporting 4Q13 net income of $95 million, up from a loss of $20 million one year ago. For the full year, it earned $448 million, up from a $69 million loss in 2012.
The title insurance business had pre-tax operating of $26 million in 4Q13, up from $20 million in 4Q12.
The run-off lines, which RMIC's results are a part of, are reporting a pre-tax operating profit of $38 million in the quarter, much improved over the $124 million loss in 4Q12.