The continuation of a soft pricing environment and recessionary conditions have constrained general insurance premium growth during the past several years. Lessened economic activity affects such factors as sales and employment levels, both of which are important elements upon which Old Republic’s insurance premiums are based. Most general insurance coverages reflected relatively stable underwriting performance except for consumer credit indemnity (“CCI”). The CCI coverage produced progressively adverse claim experience during the past three years even though consumer loan delinquency rates subsided fairly steadily from mid-year 2009 onward. The greater CCI claim costs have been driven by both higher loss payment trends and by increased levels of claim verification and resolution activity. As a consequence, the overall general insurance claim ratio was affected adversely by 8.6, 7.3, and 6.1, percentage points in the years ended December 31, 2010, 2009, and 2008, respectively. The general insurance expense ratio has reflected an uptrend during these years as the earned premium base remained under pressure. Net investment income has trended relatively flat in the face of a low yield environment attached to a relatively stable invested asset base.
Title Group premium and fee revenues grew by 36.3% and 35.4% in 2010 and 2009, respectively, as a result of greater refinance transactions in late 2008 and early 2009 and from market share gains taken from title industry dislocations and consolidations.
During the three most recent calendar years, the general insurance group experienced favorable development of prior year loss reserves primarily due to the commercial automobile, general aviation, and the E&O/D&O (financial indemnity) lines of business; these were partially offset by unfavorable development in workers’ compensation coverages, by ongoing development of asbestos and environmental ("A&E") claim reserves, and by unfavorable development of the CCI reserves.
Generally, mortgage guaranty insurance risk has historically been reinsured through excess of loss contracts through insurers owned by or affiliated with lending institutions and financial and other intermediaries whose customers are insured by Old Republic. Effective December 31, 2008, the Company discontinued excess of loss reinsurance cessions to lenders’ captive insurance companies for all new production originated subsequent to the effective date. Traditional pro-rata ("quota share") reinsurance arrangements will continue to be offered by the Company. During the third quarter of 2009, the Mortgage Guaranty Group recaptured business previously ceded to several captives. In substance, the transactions are cut-off reinsurance commutation arrangements whereby the captives have remitted to the Company the reserves on existing claim obligations and a risk premium for claims that will occur after the recapture date. In accordance with GAAP, the Company recorded proceeds of $148.9 and established a combination of existing claim reserves ($68.4) and premium income of $82.5 covering claims expected to occur after the transaction date. The company estimates that substantially all of these premiums will likely be absorbed by those expected claims in future periods thus negating the appearance of a current period bottom line gain from these 2009 transactions. Except for relatively few facultative reinsurance cessions covering large risks, the title insurance segment does not utilize reinsurance to manage its insurance risk.
At December 31, 2010 and 2009, there were 75,000,000 shares of $0.01 par value preferred stock authorized, of which no shares were outstanding. As of the same dates, there were 500,000,000 shares of common stock, $1.00 par value, authorized, of which 259,222,360 and 240,685,448 were issued as of December 31, 2010 and 2009, respectively. At December 31, 2010 and 2009, there were 100,000,000 shares of Class B Common Stock, $1.00 par value, authorized, of which no shares were issued. There were no common shares classified as treasury stock as of December 31, 2010 and 2009.
At December 31, 2010, the Company had a net operating loss ("NOL") carryforward of $216.0 which will expire in years 2020 through 2030 and a $9.6 tax credit carryforward primarily related to alternative minimum tax credits, which does not expire. Approximately $156.8 of the NOL carryforward is subject to the limitations set by Section 382 of the Internal Revenue Code. The NOL carryforward, which produces a deferred tax asset of $75.6, will be applied to reduce future years taxable income of the Company.
(b) Leases - Some of the Company's subsidiaries maintain their offices in leased premises. Some of these leases provide for the payment of real estate taxes, insurance, and other operating expenses. Rental expenses for operating leases amounted to $50.0, $43.1 and $42.6 in 2010, 2009 and 2008, respectively. These expenses relate primarily to building leases of the Company. A number of the Company’s subsidiaries also lease other equipment for use in their businesses. At December 31, 2010, ag­gregate minimum rental commitments (net of expected sub-lease receipts) under noncancellable operating leases are summarized as follows: 2011: $55.2; 2012: $46.1; 2013: $38.4; 2014: $28.1; 2015: $16.7; 2016 and after: $40.0.
The title insurance business consists primarily of the issuance of policies to real estate purchasers and investors based upon searches of the public records which contain information concerning interests in real property. The policy insures against losses arising out of defects, loans and encumbrances affecting the insured title and not excluded or excepted from the coverage of the policy.