Old Republic International Corporation has announced that it is combining its Consumer Credit Indemnity (CCI) division with its Mortgage Guaranty (MI) segment. The two operations offer similar insurance coverages, share the same senior management leadership, and have been operating in run-off mode since 2008 and August 2011, respectively. With this action, the Old Republic Mortgage Guaranty Group (ORMGG) has been re-named the Republic Financial Indemnity Group Inc. (RFIG). RFIG will include a credit indemnity insurer, three existing mortgage insurers, and four related services entities, all of which will be separately held.
Recessionary conditions in U.S. housing finance beginning in 2007 have erased the long-term profitability of the MI and CCI insurance lines and led to substantial losses. As a result, capital funds identified with these lines at year-end 2006 have been fully depleted. While Old Republic maintains a long-term strategic interest in these lines, it has stopped additional capital funding for them since they no longer meet its enterprise risk management disciplines and business diversification objectives. These circumstances also reinforce Old Republic's resolve to: Safeguard policyholders' interests in its general (property and liability), title, and life and health insurance subsidiaries by maintaining long-established protective barriers around these companies; and protect economic values inuring to the company's debt holders and shareholders.
In consideration of all these factors, Old Republic's management and board of directors have concluded that a necessary future recapitalization of the combined business can best be effected by separating these operations from the ORI holding company. Combining the MI and CCI lines, while maintaining their separateness within RFIG, provides the corporate structure to achieve this. Management and the board are evaluating alternative approaches to most effectively and economically achieve these objectives and expect to announce a plan in the near term.
The plan will require certain regulatory approvals, including the authorization of various inter-company general insurance agreements for the CCI line, and the transfer of a small general insurance subsidiary to RFIG. In anticipation of executing the plan, several explanatory pro forma financial schedules have been developed to portray the likely effects a separation of the MI and CCI lines would have on Old Republic's segmented and consolidated financial statements.