Old Republic MI in Dispute with Auditors

Old Republic International Corp., Chicago, is in a dispute with its auditors, PricewaterhouseCoopers LLC, over the reporting of reinsurance transactions undertaken by its mortgage guaranty business. In the third quarter, Republic Mortgage Insurance Co. recaptured business that was ceded to several captive reinsurers. ORI recorded proceeds of $149 million on the deal but established claim reserves of $68.4 million and premium reserves of $82.5 million. ORI had planned to shift the premium reserves to earned premiums in future quarters based on an amortization schedule. However, PwC said based on its analysis of the recapture transactions and its interpretation of generally accepted accounting principles, the $82.5 million should have been recognized in the third quarter 2009 results. ORI said its management believes recognition of that amount in the current quarter would create the appearance of much improved results where none existed or occurred. ORI said it would petition the Securities and Exchange Commission to resolve the matter. If PwC's position prevails, ORI's net operating loss of $66 million in the third quarter would be reduced to a net operating loss of $12.5 million. RMIC's net operating loss would be reduced from $103 million down to $49.3 million for the quarter, while the pretax operating loss would be whittled from $160.4 million down to $77.9 million.