Old Republic International Corp

NYSE:ORI

Earnings Call Transcript 2019-Q4

[Operator]

Good day, and welcome to the Old Republic International Fourth Quarter 2019 Earnings Conference Call. [Operator Instructions]. I would like to remind everyone that this conference is being recorded.

And I would now like to turn the conference over to Marilynn Meek with MWW Group. Please go ahead.

[Marilynn Meek, IR, MWW Group]

Thank you. Good afternoon, everyone, and thank you for joining us for the Old Republic conference call to discuss fourth quarter 2019 results. This morning we distributed a copy of the press release and posted a separate statistical supplement, which we assume you have seen and/or otherwise have access to during the call. Both of the documents are available 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 and statistical supplements dated January 23, 2020. Risks associated with these statements can be found in the company's latest SEC filings.

This afternoon’s conference call will be led by Al Zucaro, Chairman of the Board of Old Republic International Corporation, and several other senior executive members as planned for this meeting.

At this time, I would like to turn the call over to Al Zucaro. Please go ahead, sir.

[Aldo Zucaro, Chairman of the Board]

Okay, thank you, Marilynn, and welcome. And good afternoon to everyone for this 2019 second half and full year earnings conference call. I’d like to say that in the interest of full disclosure, I need to note that this will be the last call that I'll be on as a part of Old Republic's management team.

As we announced in the spring of last year to turn over the baton to Craig Smiddy, as he became CEO of our venerable Old Republic Company. And that took place effective October 1, 2019.

And at that time, we split therefore the chairmanship and the CEO positions. And as a result we've got -- we've established a good transition period during which the CEO’s position as our Chief Enterprise Risk Manager, that, that transition can take place in a flawless manner. In this light, therefore we agreed that I would participate in some manner on this call since I was at the helm of the company for three quarters of the year. And Craig took over for the final quarter of the year of course.

So, the manner in which I will participate as decided, after these few words, is to turn on discussion over to our -- three of our most senior executives as the head of our organization. And of course, that's Karl Mueller, our CFO; Craig Smiddy, our CEO; and Rande Yeager, who is the Executive Chairman of our Title Insurance Group.

Having said this, I'll now turn to you Karl to address some financial matters. And then the call will be followed by Craig Smiddy who will speak to the overall consolidated results in addition to whatever Karl will be covering, and our General Insurance Group of which Craig is also CEO. And then Craig will be followed by Rande Yeager, whom as I said is the Executive Chairman of our Title Business, will go over happenings in that business. And when they're finished, I have a few closing remarks. And as already been said, we'll turn the meetings to any questions that any connected participant may have. So, here is the mic. Karl?

[Karl Mueller]

Thank you, Al, and good afternoon, everyone. As usual, I will comment on a few key elements of our financial results for the fourth quarter, and the full year. This morning we announced fourth quarter net income, excluding investment gains and losses, $0.47 per share or $143.5 million, which is up 4.9% from the final quarter a year ago.

For the full year 2019’s net income, again excluding investment gains and losses, was $1.84 per share, or $554.2 million, which is essentially flat with 2018. These earnings produced a 10.8% return on beginning equity for 2019 if you compare that to an 11.8% return for 2018. From a growth perspective, net premiums and fees earned grew by 11.4% in the fourth quarter to $1.6 billion. This was largely driven by our Title Group for the year, premiums and fees grew 5.1%. This was attributable to both our General Insurance, as well as our Title operations, which more than offset the expected decline, the mortgage guaranty run-off business.

Net investment income grew by 2.3% and 4.4% for the fourth quarter and for the full year respectively, as a larger invested asset base and greater dividend income that was attributable to the higher yielding equity portfolio offset a slightly lower yields on our bond portfolio. From an underwriting perspective, this year's fourth quarter and full year consolidated composite ratio of 95.1% was substantially unchanged from 2018.

On a year-over-year basis, the claim and expense ratios also remained relatively consistent. Fourth quarter claims ratio however trended lower and the expense ratio ticked upward and that's primarily due to a mix of business shift towards the Title operations, which as you can see, operates with a lower loss and higher expense ratio.

Turning now to the balance sheet. Total cash and invested assets increased by 10.2% to $14.5 billion at the end of 2019. The change was driven by a combination of strong operating cash flow, which totaled $936 million for 2019, as well as substantial unrealized market appreciation for both the fixed income and the equity portfolios. Composition of the portfolio remains relatively consistent compared to year-end 2018, whereby 72% is allocated to cash and bonds and the remaining 28% to equities. And that portfolio continues to focus on high quality, long-term dividend paying companies.

On a consolidated basis, claim reserves developed without significant favorable or unfavorable development for the 2019 period and as compared to favorable development for 2018’s fourth quarter and full year of 2.4 and 1.4 percentage points, respectively.

This morning’s release, the pages 4 and 5 of the financial supplement provide additional details regarding prior year claim reserve development on a reported claim ratios for each of our segments.

Old Republic book value per share increased to $19.98, up 16% for the year. Inclusive of our regular quarterly dividend and the $1 per share special dividend that was paid in the third quarter of last year, the total return on beginning book value amounted to just a little bit above 26%. That special dividend was evaluated in light of capital adequacy and liquidity needs, along with the anticipation of withdrawing capital from our run-off mortgage guaranty operations. I would say with the regulatory approval we currently expect to receive a return of capital totaling $150 million from this run-off business during the course of 2020.

Looking ahead with respect to our MI operations, we continue to proceed along the lines that we’ve previously disclosed. We’ve said that the options available to us include a continued profitable run-off for the business over the next several years or alternatively a reactivation of the business under new ownership or finally a reinsurance of the remaining book of enforced policies. We continue to assess all of our options in the interest of producing most beneficial long-term outcome for all stakeholders.

So overall, Old Republic's balance sheet remains in very strong condition, is well capitalized and is well positioned for future growth.

So with that, I'm going to turn things over to Craig for some additional commentary.

[Craig Smiddy, CEO]

Okay. So as the results Karl covered, demonstrate our strategic diversification between our Title Insurance business and our General Insurance business, works very well for us. The uncorrelated nature of these two businesses helped produce steadier earnings for ORI overall, which is underscored by some of the figures Karl referenced. I'll reiterate a few of those but 95.1% composite ratio, the 10.8% return on equity, the 16% increase in book value per share, and including dividends a total return on book value of 26%, all for the 2019 year.

So specific to the General Insurance Group as the release indicates, and as we’ve shown in the financial supplement, the Group saw mid single-digit growth quarter-to-quarter and year-over-year in both net premiums earned and in total operating revenues. Quarter-over-quarter operating income was relatively flat, while year-over-year operating income was up 1.7%.

Net premiums earned in commercial auto rose by 6% year-over-year. And this mostly reflects the positive effect of the rate increases that we've been achieving in this line that currently stand in the high teens for the 2019 year. However, premiums have been somewhat offset by a decline in the exposure base due to lower U.S. freight shipments in 2019 compared to 2018.

As can be seen in the financial supplement, workers’ compensation experienced a 1.9% drop in net premiums earned year-over-year and this is mostly resulting from rate decreases. And for 2019 those are the low single-digits and those rate decreases correspond with lower claim frequency trends that we’ve seen in the past several years.

Quarter-over-quarter the Group's overall composite ratio rose slightly to 98.8% from 98.5%, while year-over-year it stands at 97.5% for 2019 compared to 97.2% for 2018. The Group's fourth quarter expense ratio came in at 25.8%, while the full year 2019 expense ratio came in at 25.7%, up from 25% in 2018. This higher expense ratio in 2019 is largely due to differences in the mix of business. For example, workers’ compensation writings as we just spoke about are less than they were and that typically comes with a lower commission rate. So that's what we mean by differences due to mix of business.

Turning to claim ratios, our fourth quarter commercial auto claim ratio came in at an elevated 91.3% with the year-over-year ratio coming in at 84%. The systemic increases in claim severity trend in the U.S. commercial auto line continue. These are from the same underlying causes that we’ve spoken about now for several quarters and we will continue to respond through rate increases, risk selection accompanied with better levels of technology to help us in that risk selection and we will continue to perfect this until such time we see this claim ratio come back in the line with our target, which remains in the low 70s.

Turning to workers’ compensation, the fourth quarter claim ratio declined to 57.4% from 67.5% quarter-over-quarter and year-over-year this claim ratio declined from 70.7% in 2018 to 63.2% in 2019. And obviously, we remain very pleased with this improving result in workers’ compensation. General liability experienced an elevated claim ratio quarter-over-quarter and year-over-year. But as is the case, we have said in the past, we write less premium in this line of coverage, so results tend to be more lumpy or volatile quarter-to-quarter and year-to-year.

For commercial auto workers’ comp and GL combined, given that we typically provide these coverages together to an account, the quarter-over-quarter claim ratio increased by 2.2 percentage points, while year-over-year this claim ratio held relatively steady. Still looking at the financial supplement, we note that financial indemnity claim ratio quarter-over-quarter and year-over-year dropped significantly, coming back in the line with our targets and we think this improvement reflects actions that we’ve taken to address the higher incident of guaranteed asset protection, GAP claims as well as the higher incidence of D&O claims that we experienced over last few years. And as we spoke about in prior quarters, we were taking some fairly aggressive actions in those regards.

All the claim ratios we report, of course, we are inclusive of favorable and unfavorable development. And in the latest quarter we saw unfavorable development of 2.9 percentage points, mostly resulting from commercial auto, while year-to-date the development was unfavorable by 0.4 percentage points.

So again, speaking for the General Insurance Group, we continually seek to selectively grow our business, make investments to sustain long-term growth and profitability, while proactively responding to loss trends that we're seeing.

Underwriting profitability remains paramount and there's a keen focus on improving our claim ratios, particularly our commercial auto claim ratio.

So, on this note, I'll turn the discussion over to you Rande for comments on ORI Title Insurance Group.

[Rande Yeager, Executive Chairman our Title Business]

Great. Thank you, Craig. I appreciate. Of course, as we reported this morning the Title Group’s quarterly and annual results were very good. In the fourth quarter we set an all time record for underwriting revenues of $717 million. For the fifth consecutive year and six of the last seven, we surpassed the $2 billion mark for total revenues.

Last year's 2019’s $2.53 billion number is an all time high. Favorable prior year claim development continued during the year although at a slower pace than we've seen in the past few years. But backing out these adjustments, records were set for both quarterly and annual pre-tax profitability. We surpassed $200 million in pre-tax operating profitability for the fourth consecutive year.

Looking at the market, when the dust settles, residential mortgage originations are expected to be up about 23% in '19 or '18 exceeding $2 trillion for the year. Refinances accounted for almost 40% of that total. We're about 70% higher than 2018. The latest Mortgage Bankers Association estimates call for similar origination markets in 2020 with refinances down moderately and purchases up slightly. On the commercial side of the business, the MBA predicts that a new record of $628 billion will have been established in 2019. And their optimism actually rises in 2020 as our projections increase about 9% into a new high of $683 billion. Certainly, all of this is good news and would provide for a healthy marketplace in 2020.

Our market share indication last was 15.1%. And when the final numbers are tallied, I think that number will hold for the year. For 2019, our agency premiums were up about 5%, direct operating premiums and fees were up about 12%. Our commercial Title operations continue to perform at a high level with Title premiums from this source, commercial accounting for almost 20% of our total premiums.

We believe that our offerings of commercial and residential services are of course, [second to none] of underwriting expertise and customer support.

Over the years, we've enjoyed a great deal of success in the Title Group. And like all the other ORI business units, we emphasize integrity, expertise and culture. We'd like to say that we're steady as it goes. We stick to the basics. We're not chasing market share, and don't try to buy our way to the top. Our acquisitions, when we make them have strategic value in terms of where they are, the geography and our people's intellectual capital. Our reputation is for professional services. Our success, when you look back, put it all together as a byproduct, did the job well done in all of these regards. So that's my report on the Title business.

And now turn it back to you Al for any closing remarks you may have.

[Aldo Zucaro, Chairman of the Board]

Okay. As my three colleagues have just reported, our business continues to perform very well. Last year, by the way, we posted the highest pre-tax earnings in the entire history of our company. And as always, we're managing our way out of a few parts of the General Insurance business in particular, which are and have been experiencing some temporary cases of hiccups, if you will. But we see this as part and parcel of what we do and what we do in terms of the underwriting risk management process that our people from top to bottom are well equipped to deal with throughout the cycles of our business.

As Karl said, at both the ORI holding company and at the most critical insurance operating levels, we are very well capitalized to; at once, support the obligations on the right side of our balance sheet. Two, protect the capital accounts on behalf of all of our stakeholders. Three, maintaining sufficient dry powder always to contain the possibility of negative eventualities and as well provide for the strategic growth of our company, both organically and through well thought out external additions.

I believe that we have put together over the years and have now a fortress balance sheet and that room in tip top shape to do all of this always with the style that Old Republic has been known for in all the years ahead.

So on that note, I think this is a good time to conclude and to open up or visit to any questions that participants may have.

[Operator]

[Operator Instructions]. We will now take our first question from Greg Peters of Raymond James. Please go ahead.

[Greg Peters, Raymond James]

Al, I enjoyed our 25 plus year association and I have to say it's going to be surreal to not have your participation in these quarterly conference calls going forward. So good luck on your retirement.

[Aldo Zucaro, Chairman of the Board]

Thank you, Greg.

[Greg Peters, Raymond James]

Pivoting to the results of your General Insurance segment, I was looking at the table on Page 3 that you talked about in your comments about the claim ratio for the fourth quarter or for the full year. And I was looking at the claim ratio excluding the prior period claim reserves development. And the fourth quarter 2018, it was 75.9% and then the fourth quarter 2019 it’s 70.1%. So you have 500 plus basis point improvement in the underlying claims ratio. And then I'm trying to reconcile that with what is going on in your commercial auto and general liability business where looking at the table on Page 4 of your statistical supplement, you're showing frankly some of the highest loss ratios in commercial auto and general liability that I've seen from your company in a long while. Maybe you can help put those pieces together so I can think about your outlook in a more measured basis?

[Aldo Zucaro, Chairman of the Board]

Sure, Greg. I will try to address that. So I think what is come through here, obviously, is that an unfavorable development that we saw is driving those higher loss ratios that you speak about in the financial supplements. For the current year, we feel very confident in the loss ratio that we have listed there. And there are mix of business changes that impact that, some of the business with lower loss ratios has increased proportionately. And as I spoke about earlier, workers’ compensation has had less writings there. So, that's an example where our current year loss ratio is higher than the reported loss ratio. It creates those kind of differences that you're speaking about. But again you can assume that the higher loss ratios that you're looking at are result of some unfavorable development from prior years that we’re getting caught up with as some of that severity has come through.

[Greg Peters, Raymond James]

Okay. I appreciate that comment. I understand your business mix issue. So -- and I guess this speaks to loss picks, just the loss picture from prior year's was -- were too low, or you had to adjust them, it’s just causing the question whether the loss picture of the current year in light of this new rising severity environment, if those are set at the appropriate levels?

[Aldo Zucaro, Chairman of the Board]

Yes, it's a fair question. Again, I would reiterate we feel very comfortable with those. We have spoken about the compounding effect of rate increases year-after-year and that gives us some comfort in that loss pick. Right now, for example, D&O rate increases are -- primary D&O are in the 30% range and excess D&O are in the 60% range. That’s consistent with what some other market place observers have reported as well. On our aviation business, right now our rate increases there are very strong and in the 20 plus range.

So when we look at those kind of rate increases, they have to have an impact on the current year and future years. And therefore, we do feel confident about that. And on the other hand, the severity that has come through particularly on auto has demonstrated that the picks we had in years were we didn't yet have those kind of benefits from rate coming through. That's where we’re experiencing some of the unfavorable development.

[Greg Peters, Raymond James]

Thank you. Maybe just other piece of General Insurance and I would like to ask Rande a question if it’s okay. On the expense ratio side, was up for the quarter-over-quarter. I think part of it is business mix but it’s also up for the full year. And Al I know you’ve talked about that range being in the 23% to 25% area and Craig I feel like you guys are very interested in seeing that lower. Can you talk about some of the levers you might pull over the course of the next year or two to drive a lower expense ratio?

[Aldo Zucaro, Chairman of the Board]

Yes, sure. Well, the easy one is, as premiums grow and we don't increase our fixed costs, our staffing costs, that will obviously probably be the biggest contributor when you see for instance our work comp, premiums coming down, your expenses for that line tend to go up at least your fixed expenses. So, I would also point to our commercial auto. I made the comment that we've seen an offset there on premiums because of lower costs -- or excuse me, lower trucking revenues in general and lower amount of miles driven. My trucking company shipments were down. So as that returns, we can expect our top-line to grow without necessarily growing our internal costs.

We are taking a look at commissions in general, specifically on lines that may not be performing as well. So that's another area we're looking at. The thing that we don't want to do is starve ourselves of investment. We do have currently some investments in some newer startups that that we've engaged in. Our residual market business, for instance, is a new business that has yet to produce premiums and will do so beginning in 2020 and that'll come on very quickly. But we consider that an investment and we've been carrying that expense and our other operation, our specialty insurance underwriters operation is in a similar position. So, as those investments pay off and start to produce the kind of results we expect, we will see some improvement there.

But what we don't want to do is starve ourselves of necessary investments in technology for instance. We've made some pretty significant investments in technology to improve our ability to analyze planned data and improve our underwriting techniques. And I would tell you that our analytics are much better today than they were several years ago, and we continue to invest in that across our enterprise and we don't want to starve ourselves there either.

So, all of those things together, we think still we need to maintain that 23% to 25% target, and it remains our target. And as things shake out in 2020, we will certainly keep an eye on expenses, and if necessary, take further actions.

[Greg Peters, Raymond James]

Okay. I would have more questions, but I'm sure there's other people that are going to ask. So I'll defer to them. So on the Title Insurance piece, Rande, can you give us a sense of how the commercial component has grown over the last year or two relative to where the market share is and if you still think your opportunity going forward as a net market share gain will grow faster than the market? And I'm speaking on the commercial side of the Title Business.

[Rande Yeager, Executive Chairman our Title Business]

Yes, thanks, Greg. Yes, I mean we've had tremendous growth on the commercial side of the business. It's about 20% of our premiums I think as we said. And we're looking -- if you go back 10 years or so you're looking at a 5% or so market share.

We do a lot of our work through agents. We have a superior commercial unit that operates directly for the insurer. And you know what, we keep applying ourselves and the rewards keep going. So we're optimistic about every unit, commercial, no different than anything else. We feel good about where we are in the industry and how we're approaching it and the success that we're having.

[Greg Peters, Raymond James]

And so would you -- do think when the final numbers are tallied up when you compare 2019 versus 2018 you guys will have gained share in commercial relative to your peer group?

[Rande Yeager, Executive Chairman our Title Business]

The MBA does put up through CREF some estimates on that. We have to estimate. It's very difficult to tell because of the way. We don't have a real good definition of those policies that are considered commercial. So if we look at it in terms of trends, do I think that we gain market share? Yes. That would be the bottom-line. I think there's more room? Yes. So that's the answer.

[Operator]

[Operator Instructions]. And we will go ahead and take your question from Greg Peters of Raymond James. Please go ahead.

[Greg Peters, Raymond James]

Well, Excellent. I'll take another bite of the apple or two. Can we go back to the General Insurance business or the segment? And in the past Al you've been -- when you're doing a year-end call, you've been generous enough to provide some guidance around where you think the consolidated claims ratio or expense ratio or the composite ratio for General Insurance might range for the upcoming year.

And from the analyst community perspective, we're watching some moving pieces, and you've highlighted the commercial auto and the general liability and the workers’ comp. Just wondering when you went through your budgeting process, what you might be willing to share with us in terms of an expectation for 2020?

[Aldo Zucaro, Chairman of the Board]

Well, Craig has gone over that to some degree, and maybe I mean Craig you can address that again, because a lot rides on the mix of our business. And it's continually changing as you can see in the statistical exhibit, right? Automobile which has a different cost structure attached to it goes up. Comp, which has also a different cost structure goes down, and the combination of those things. And then you add to that such things as our financial indemnity business. So our home warranty business, which tend to have a pretty high expense ratios as that mix changes it has an impact over the overall expense ratio. But as Craig said, okay, nothing has changed in our view of what our business can produce given its current mix. And that is the loss ratio range that we show on the bottom of -- what page is it on? Page 4, and the expense ratio range that you see. We can't do much better than that then to speak to those two ratios, except into -- in ranges, in terms of ranges. And I think we've had some difficulties from an underwriting standpoint in parts of our business, notably the automobile business, right? But we think over time, that fixes itself. And we think we can go even better than 95% if only we have a permanent -- and I think we're headed in that direction, a permanent change of direction in terms of loss reserves or claim reserve development. We've always been nicked off, for the several years we've been nicked by that. But we think that we are in a strong reserve position and those should start to diminish if not evaporate from the consistency of the numbers.

I think that's the best we can give to you, Greg, or anybody else about where we think the General Insurance Group can operate given its current mix of business. Can it operate at a 80% combined? No, it's never happened. Can it operate at a 90% to 95% ratio? Yes, yes, absolutely. And we've got enough pockets of business that we think we've corrected or are in process of fixing. And it takes 18, 24 months between the time that you change your underwriting, your pricing and so forth before those results emanate into the earnings -- the premium earning process.

So I think the combination of all that, I'm using a lot of words, but I for one, I'm very confident that we can not only operate at that 95 but start inching down from there. We certainly have a long-term record of having done that. I think a key point that Greg is making by suggesting that, we don't want to starve ourselves from the standpoint of making investments in the future of our business. But when we do that there's a price to be paid. Because any new operation, any new adventure we have in the insurance business, right, takes some time to gel. And initially it creates expenses before it creates earned premiums. So I'm throwing all of that stuff up in the air because they're all part and parcel as to why we've had some difficulty reaching that 95. But as I said I think we're in good shape to gradually go somewhat before that -- below that 95 with the current mix of business.

[Craig Smiddy, CEO]

Greg, I would just add that if you put two and two together here when we say that, we want our claims ratio averages to be in the high 60s to low 70s and that we’re not there and that we’re taking considerable action on rate and risk selection and other steps to address the problematic portions of our portfolio. Obviously, we expect all those veins to get us to those high 50s, low 70s. So, therefore, our expectation is that we're going to incrementally improve, not worsen.

[Greg Peters, Raymond James]

Thanks, Al and Craig thank you for the answers. Two other questions for you. And maybe Karl if you want to chime in on this one. But I'm curious about changes if there's any in your attitudes around the investment portfolio, deemphasizing equities, more emphasis on equities, et cetera. And then I know you spoke a little bit about this Karl around capital. But could you update us sort of where you are from a capital adequacy perspective. I know one of the metrics you’ve used in the past is the reserves to capital sort of metric. Give us an update of where you are on that and how you think the company looks going forward?

[Karl Mueller]

Sure. Well first with respect to the equity portfolio, we've had this increased allocation to equity securities now for the past five or six years, I think since year end 2013 when we began to increase the percentage allocated to equities. And that was about the time that yields on our bond portfolio started to descend. So I would say the shift was in part intended to be a yield enhancement to the portfolio overall such that we would not see decline or substantial decline in our net investment income. So the portfolio, which consists of about 100 equity securities, well-known companies with long histories of paying dividends and increasing dividends over time.

So we feel very good about the portfolio and the market has treated us well this past year in terms of market appreciation. From a risk perspective, we do perform a periodic stress test to evaluate what a market correction would do to our shareholders’ equity account. And we feel comfortable with the current allocation associated, would not have a material negative effect. So in terms of capital adequacy, we do follow a number of metrics. And you're right one of the key metrics particular for our General Insurance Group is the reserves to statutory policyholder surplus ratio. And I think as we stated before, the target range we set for ourselves is 125% to 175% leverage ratio. And I will say that as of year-end 2019, we are operating at about 142% roughly give or take a little bit which is supportive of one of my parting comments that we are well capitalized and poised for growth, particularly given the long-tailed nature of many of our coverages, we will have an accumulation of reserves over time and we will need capital to support that growth in the business.

So, we feel very good about capital levels across the organization. You look at our Title operation, and they've grown capital this year. And it's at a level that's sufficient to make us players in the commercial Title space. And I think we've got roughly $570 million of statutory capital in that business.

I also talked about the MI business and the anticipated return of capital of $150 million this year.

We feel very good about that. Obviously, it will require regulatory approval. We've had continued dialogue with the North Carolina Department and have presented a dividend plan such that we feel confident that we'll be able to execute on that throughout the course of 2020.

Overall, we feel very good about where we are capitalized.

[Greg Peters, Raymond James]

What -- Karl just remind me where -- what's the capital position of the run-off MI business as of 12/31/19?

[Karl Mueller]

Yes. Right now for all three of our MI companies, the total statutory capital is just a hair over $473 million.

[Aldo Zucaro, Chairman of the Board]

And as you may remember, Greg, our feeling is that, that business should be probably totally run-off by 2022-‘23. And as Karl indicated earlier, we think that if we do nothing, except run it off, that the remnants of insurance in force that's in place could be reinsured and would as a result enable us to decapitalize the company and take to the remainder of that capital. And we've said that it is not unthinkable that at the end of the rainbow we could be staring at $500 million plus in that company. I mean it is well capitalized and it's got a good book of business. And unless all hell should break loose in the real estate business, in the housing business, right? The loss ratios should continue to be contained there and therefore provide that assurance that, that part remains at the end of the rainbow.

I think we do this in a very digitally manner. As Karl said, we take it one step at a time, based on what's happening to the in force of that business. And as we said, first step we're taking this year with the full approval concurrent of the North Carolina Department. And then we know we see how things develop this year, and we take the next step. So, that it's a gradual process over the next three to four years, as long as we own the company.

[Greg Peters, Raymond James]

Correct. And if I'm not -- maybe you can clarify the special dividend that was issued last year. The funding of that came in part from the excess capital that's sitting in the run-off MI business? Or was the funding of that -- does that emanates elsewhere?

[Karl Mueller]

Yes, let me just clarify. The funding for the dividend that was paid in September came from capital resources at the parent holding company level. But it was made in anticipation of receiving a distribution from the MI companies in 2020. That was a key consideration.

[Operator]

That concludes today's question-and-answer session. At this time, I'll turn the conference back to management for any additional or closing remarks.

[Aldo Zucaro, Chairman of the Board]

We appreciate everyone's participation. And I appreciate in particular your participation, Greg for asking some very good questions and keeping us on our toes. That's all good. And I'm sure that my colleagues here are going to be looking forward to the next conference call we will have. And I know that the news based on everything we see is going to continue to show that our good Old Republic ship, it'll be sailing majestically going forward. So with all that we wish you a happy day.

[Operator]

This concludes today's call. Thank you for your participation. You may now disconnect.