well here is why the CCI claims costs were high for q2. April '12 summary court judgements (2 out of 3) in favor of FDIC vs ORI, who tried to retroactively back out of policies they wrote...now why didn't Aldo just come clean and just say they lost...instead he said, a longer period of legal expenses?....classic Aldo
Looks like one very big issue - interpretation of the cumulative limit of liability provisions of the agreement - was not decided by summary judgment, and may be headed for a jury trial. That would explain Zucaro's statement.
I like the following quote from the opinion: "Despite the parties' vigorous arguments to the contrary, the court concludes that both FDIC and Old Republic offer entirely reasonable interpretations of this sloppily drafted contract."
there were 3 issues...the one that goes to jury is whether the loans that FDIC sold to a 3rd party (I assume FDIC still has most default liability) are still coverable
the other two issues: that the loans that FDIC still holds, that are in default, ORI must pay on and ORI trying to squirm out were shot down in favor of FDIC....
so will they have to cover the sold loans?...i am thinking if it goes to jury, ORI will have a tough time as reasonableness will come down on FDIC's side....it is not like the holder of the loans matter.....
Am I missing something? This doesn't appear to be a CCI legal claim. It's mortgage insurance -and it's potential, not actual.
Even if they lost, this doesn't impact the long term viability of the company nor its ability to increase the dividend. Even if it's only .01 per year, 1%+ dividend growth on top of a 9% yield is a very profitable return.
The defendent is ORINSCO, which is the sub that holds CCI. But ORINSCO doesn't appear to be a contributer to holdco dividends as it has lost money for awhile, so not sure it really matters. It gets back to the issue of whether holdco or other subs can be held accountable for losses at the money losing subs, and I think we've already answered that - no, as far as other insurance subs, maybe at holdco, to the extent holdco has received dividends in recent past from the troubled sub in question - that is not the case here, no dividends to parent I suspect from ORINSCO given losses at CCI, so don't think it's too much of a worry.
I don't really know what has people so terrified on this name - all things revealed in time I guess...
my one negative thought on quarter was the general insurance trends were disappointing, with elevated claims on workers comp. There's risk to that line item if unemployment stays high. That said, title insurance had a very good quarter, and appears likely to pick up the slack this year and hopefully next. If unemployment creeps down over the next year, workers comp should gradually move back to historical profitability.
I think the other exposure is in the reinsurance agreements. I dont know the specifics of which subs are reinsuring off the top of my head, but that is a case of exposure beyond what you were saying. We would need to know the capital at risk in that case and then any potential impact to dividend capacity. As well, any clawback potential. I dont have those answers, but I think that is the key, at least as it relates to CCI.
However, from first glance I thought as well the attached link had to do with what appeared to be mortgage insurance, but I didnt read it very close...
Wasnt this suit referenced in the initial line settled? Per the same release (filing for the RFIG spin) I see:
"On February 18, 2011, the Federal Deposit Insurance Corporation, as receiver of AmTrust Bank, filed a suit against Old Republic Insurance Company ("ORIC") in the U.S. District Court for the Northern District of Ohio arising out of ORIC's termination of a credit indemnity policy issued to insure home equity loans made or held by AmTrust. The suit (Federal Deposit Insurance Corporation v. Old Republic Insurance Company) alleges breach of contract and seeks a declaratory judgment that ORIC's attempted termination and/or cancellation of the policy did not terminate coverage of the insured loans and that ORIC remains obligated to provide coverage for such loans under the policy. The suit seeks damages in excess of $46 million, declaratory relief, pre-and post-judgment interest, attorneys' fees and costs. The suit was settled on April 27, 2012 in return for a complete termination of the policy in question. The company's obligations under this settlement were considered during its periodic loss reserving process.
Eight purported class action suits alleging RESPA violations have been filed in the Federal District"
I think this is page 64 of the filing.
My main issue is to find the ORIC (depending on where you are viewing the acronym is different) and the other subs capital at risk, potential dividend clawback, and any non-listed exposure potential.
only 2 out of 3 rulings on that suit were settled....
presumably ORI puts away reserves depending on whether they think they will win/lose...in the 10q they indicate that they expected to win and therefore nothing was put aside....the rulings in April is what spurred them to take additional claims expenses
The key is to a) make sure what they did in March with xfer of risk is valid and b) find out about ORIGENCO.....
Even if there is little capital (from increased loss reserves based on the "model"), there is a good chance that CCI subs are still cash-flow positive so any settlement can have an impact
look at 10k....these are home equity loans, which were and have been written since 1954 by ORICO or ORINSCO (i can't keep acronyms straight anymore).....they are "credit" insurance since I guess u can use proceeds for whatever...and we AMERICANS sure did!
also.....look at May filing....ORINSCO dumped the liability to RCIC up to 155% but know ORIGENCO sold the stop-loss reinsurance to RCIC....how they managed that one, i do not know...if i were the regulators Id be all over that one......
does anyone know anything about ORIGENCO? This is all I came up with....surplus of 250mn+