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Executives

Craig Barberio - Director of IR

Dennis Gilmore - Chief Executive Officer

Max Valdes - Executive Vice President and Chief Financial Officer

Mark Seaton - Senior Vice President of Finance.

Analysts

Jason Deleeuw - Piper Jaffray

Mark DeVries - Barclays Capital

Tyler Bozynski - Stephens Inc

Nat Otis - Keefe, Bruyette & Woods

Adam Klauber - McCrory Securities

John Boisclair - Dominic Brokerage

First American Financial Corp. (FAF) Q3 2010 Earnings Call October 28, 2010 11:00 AM ET

Operator

Welcome and thank you for standing by. At this time all participants are in a listen-only mode. (Operator Instructions) This call is being recorded. If you have any objections, you may disconnect at this time. A copy of today's discussion material are available on First American website at www.firstam.com/investor.

Please note that the call is been recorded and will be available for replay from the company's investor website and for a short time by calling 203-369-1888. We will now turn the call over to Craig Barberio, Director of Investor Relations to make an introductory statement.

Craig Barberio

Good morning everyone and thank you for joining us for our Third Quarter 2010 Earnings Conference Call. At this time we would like to remind listeners that Management's commentary and responses to your questions may contain forward-looking statements such as those described on page five of today’s earnings release and other statements that do not relate strictly to historical or current facts.

The forward-looking statements speak only as of the date they are made, and the company does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made. Risks and uncertainties exist that may cause results to differ materially from those set forth in these forward-looking statements.

Factors that could cause the anticipated results to differ from those described in the forward-looking statements are also described on page five of the news release. Management's commentary contain and responses to your questions may also contain certain financial measures that are not presented in accordance with Generally Accepted Accounting Principles. The company does not intend for these non-GAAP financial measures, to be a substitute for any GAAP financial information.

In the Form 8-K that we filed today, which is available on our website www.firstam.com the non-GAAP financial measure is disclosed and managements commentary are presented with and reconciled to the most directly comparable GAAP financial measures. Investors should use these non-GAAP financial measures only in conjunction with the comparable GAAP financing measures.

With that said, joining us on today's call will be our Chief Executive Officer, Dennis Gilmore; our Executive Vice President and Chief Financial Officer, Max Valdes; and Mark Seaton, Senior Vice President of Finance.

With that I will turn it over now to Dennis Gilmore.

Dennis Gilmore

Thank you, Craig. In the third quarter First American earned $0.31 per diluted share on total revenues of $1 billion.

The company’s Title Insurance Segment generated pretax earnings of $60 million for a pretax margin of 6.5%. Excluding the impact of net-realized investment gains and losses, Title margin showed improvement relative to last year, despite a 10% decline in revenue.

Open orders increased throughout the quarter with 6600 per day, driven by strong refinance activity. Orders in October are relatively stable compared to September, providing a strong pipeline as we move through the fourth quarter. If open orders continue to be strong we will experience a better than expected first quarter, which is typically our weakest quarter.

Our Commercial Title business continues to build momentum with total revenues of $73 million during the quarter, a 39% increase relative to last year. The growth in commercial activity is broad-based across both geographic markets and customer segments. And we are also are benefiting by larger transactions as our average revenue per order has increased by 50% when compared to last year.

Revenues in our International division was $77 million, down 4% compared to last year. The Canadian market remains stable and the U.K. market continues to be soft but is showing signs of stabilization.

Our Default business generated revenues of $43 million during the third quarter, down approximately 30% compared to last year. However, default activity hit a low point in July and revenues have increased each month since then.

Our Title business recently announced several new initiatives to enhance the service we provide our customers. During the quarter our National Lender and Default businesses were rebranded under the new name First American Mortgage Services. The division provides Title, settlement and valuation solutions to large national customers. It focuses to grow market share by providing efficient, cost effective solutions to its customers.

In addition we launched a National platform to provide for customers who manage large REO portfolios a single point of contact that leverages our local closing capacity.

Data trace, our Title plant business launched a fully automated product called TitleIQ, which enables customers to order Title information products directly online.

Lastly, we expanded our AgentFirst mobile application for smart phones providing real estate agents who are permitted, to access the detail property information and allowing them to place Title, and Escrow orders directly from their phone.

Although we covered it in detail in our press release, let me comment briefly on our response to the Foreclosure situation. We have devoted a substantial amount of time studying the issue and have determined that it’s prudent to continue to ensure sales of REO properties. Though we have supplemented our underwriting guidelines on these properties, given the actions taken by lenders to remediate efficiencies and to improve their processes going forward, we do not think a general indemnity is necessary.

The lending community is taking this is very seriously and we support their efforts to address the concerns that have been raised.

Moving on to our other businesses, Special Insurance have another strong quarter. Total revenues were $74 million with a pretax margin of 16.5%, both numbers showing improvement over last year. Our Property and Casualty continues to benefit from good claims experienced, with a loss ration of approximately 45%.

Our Home Warranty business despite seasonally high clients still delivered better pretax margins compared to last year due to strong operations and cost management.

In terms of the market environment, we are encouraged by order pipeline for the fourth quarter. However, we are planning for a challenging year in 2011 and we will continue to maintain a conservative balance sheet until we get further clarity on the health of the real estate markets and we will be staying focused on improving our financial performance while taking advantage of select, profitable growth opportunities.

I would now like to turn the call over to our Senior Vice President if Finance Mark Seaton.

Mark Seaton

Thank you, Dennis, I will comments on our revenue reclassification, liquidity and capital. Beginning this quarter, we are providing a more detailed breakout of revenues in our earnings released in our Form 10Q.

We have created a new line item Title information and other, which includes all non-risk related operating revenue. Such as Title Plant information, information reports, search products, appraisal and other revenues. Historically these revenues were primarily included within our direct revenue line item.

The purpose of this reclassification is two-folds. First, although we recognized that the reclassification is a bit of a nuisance in the short term, over the long-term, we believe that new information will be valuable to investors, seeking to understand our key revenue drivers.

Second, the new revenue disclosures improve our representation in certain ratios. For example, our loss provision ratio is now determined by dividing our loss provision expense by the sum of direct premiums and escrow fees and agent premiums. This ratio is a more meaningful representation of the claim losses relative to the risk-related revenue that generates the losses. By removing non-risk related revenues from the denominator, our loss ratio will be higher than previously reported but it will not affect our loss provision expense.

Our revenue per order is determined by dividing direct premiums and escrow fees by our Closed Orders for a given period. After removing non-risk related activity from both our direct revenue and order accounts, our revenue per order during the third quarter was $1,300. This is primarily composed of refinance, purchase and commercial orders.

During the third quarter, our averaged revenue per order was $800 for refinance, $1,400 for purchase and $7,700 for national commercial orders.

This revenue reclassification does not affect total revenue or earnings for any period. The new revenue breakout includes the following line items. First, direct premiums and escrow fess includes risks related revenues such as insurance premiums, endorsements and closing fees.

Second, agent premiums include premium receipt from the company’s agents and will remain unchanged from prior disclosures.

Third, information and other includes non-risk related revenue such as Title Plan information, from our Data Tree and Data Trace subsidiaries, search products, appraisal and other revenues. Finally, investment income includes income from our cash and investment portfolios.

In addition to the revenue reclassification, we are also restating order accounts to exclude all non-risk related orders, such a search packages and information related orders.

To help investors understand the impact of these changes we have included in the 8-K we filed this morning a more detailed explanation of the changes as well as five years of annual historical financials in addition to the quarterly financials dating back to the first quarter of 2009. You may also download this information from our website at www.firstam.com.

In terms of liquidity, we currently have $43 million of cash at our holding company. We expect to receive approximately $20 million in dividends from our operating subsidiary between now and the end of the year.

We also expect to make cash payments as a holding company of approximately $26 million. So we expect to end the year with approximately $45 million of cash as the holding company.

In addition of this cash we also have $94 million of our $233 million CoreLogic stock investment at our holding company and $200 million available on our credit facility. So holding company liquidity remains strong.

In the third quarter we generated $55 million of cash flow from operations. Debt on our balance sheet total $297 million as of September 30. Our debt consists of $200 million funded our credit facility, $48 million of trusty notes and $48 million of other notes primarily related to acquisitions. Our adjusted capital ratio as of September 30 was 13.3%.

Our cash and adjustment portfolio totaled $3.3 billion as of September 30. The portfolio which comprise debt securities of $2 billion; cash and short-term deposits of $811 million; equity securities of $284 million, which is primarily related to our ownership interest in Core Logic; and $209 million in less liquid long-term investments.

Overall we have a high quality portfolio with 75% of our debt security in really AAA and only 2% rated below investment grade.

On our last call we noted that we were in the process of combining our New York underwriter, First American Title Insurance Company of New York into our primary California underwriter. This process was completed in the third quarter.

We have now merged or eliminated 16 Title underwriters during the last two years, which reduces complexity and administrative cost and represents another step in our efforts to further simplify our operating structure.

In terms of our capital structure we intend to remain conservative heading into 2011 as we prepared for a challenging market environment while maintaining adequate flexibility to act on any opportunities that may arise.

I would now like to introduce Max Valdes to provide an overview of our financial results.

Max Valdes

Thanks Mark. On a consolidated basis total revenues for the third quarter were $1 billion, down 9% from the same quarter of the prior year. Net income was $33 million or $0.31 per diluted share compared with $39 million or $0.37 for the third quarter of 2009.

Results for the current quarter include a small net realized investment loss of $400,000 while results for the same quarter of the prior year benefited from net realized gains of $5 million or $0.03 per diluted share.

In our Title Insurance and Services segment total revenue for the third quarter were $925 million, down 10% compared with the same quarter of the prior year.

Current quarter Title Premium and Escrow Fees were $754 million, down 9% compared with the same quarter of last year.

Direct Premiums and escrow fees were down 6% driven by 13% decline in Closed Orders, partially offset by higher average revenue per order.

Average revenue for Direct Title order increased 8% to $1,307 compared to the same quarter of last year reflecting the strength of our Commercial Title business and the impact of price increases filed in 2009.

These factors more than offset the increase in the mix of lower premium refinance transactions in the current quarter. Agent premiums were down 12% in the third quarter primarily due to the normal reporting of about a quarter.

As a result lower agent remittances this quarter reflect weaker second quarter mortgage origination activity in 2010 relative to 2009.

Information and other revenues totaled $149 million in the third quarter, down 11% compared to the same quarter of last year. The decline in these revenues was generally in line with a decline in overall mortgage origination activity and our direct order flow.

Investment income totaled $20 million, which was down 9% compared with the same quarter last year driven by the decline in interest rates that reduced our portfolio income.

Total expenses in the Title Insurance and Services segment were down 10% in the third quarter compared with same quarter of last year. We have done a good job keeping expenses in line with revenues.

Salary and other personnel costs and other operating expenses were $468 million down $49 million or 9% compared with the same quarter of last year.

Agent retention was 80.6% of agent premiums unchanged as compared to the third quarter of ‘09. The impact of a geographic mix agent premium on agent retention outweighed the progress we continue to make on improving our agent splits.

Our provision for Title office was 50 million in the third quarter or 6.6% of premium and escrow revenue compared with 6.8% last quarter and 6.0% in the same quarter of ’09. The loss position rate in the current quarter reflect a lower ultimate loss rate of 5.2% for the 2010 policy year and average development in prior policy years primarily 2006 and 2007. We continue to book to our actuaries best point estimate.

The companies Title Insurance segment generated the pre tax margin of 6.5%. Excluding the impact of ret realized investment gains and losses, this was a 40 basis improvement in pretax margin in relative to last year.

The improved margin was driven by better expense control as revenues were down 10% compared to last year. The increase in the mix of revenue coming from higher margin Direct Title operations also contributed to the improvement in pretax margin during the quarter.

Now moving on to our Specialty Insurance segment; total revenues were $74 million up 5% from the same quarter of the prior year. The third quarter includes the impact of $2 million in net realized investment gains. Overall expense control remains strong with total expenses essentially flat compared to the third quarter of ’09.

Our Property and Casualty business benefited for a favorable loss ratio of 45% while lower personnel cost in the Home Warranty business more than offset higher received seasonal claims.

The Specialty Insurance segment pretax margin was 16% in the quarter up from 11.4% in the same quarters of the prior year.

Included in the current quarter were net realized investment gains that improved the margins by 250 basis points.

To wrap up corporate expenses were $16 million for quarter, portal which was our first four quarter as a standalone company. At this point we are tracking to our expectation of $60 million on an annual basis.

With that I will turn the call back over to the operator to take your questions.

Operator

Thank you, (Operator Instructions) Our first question comes from Jason Deleeuw.

Jason Deleeuw - Piper Jaffray

Thanks and good morning. For October the Open Orders were running just a little bit below September. Can you give us some color on what’s driving that. Is that just less refi activity? Are you seeing any reduced foreclosure, sales, real sales in October with the Foreclosure-Gate issue?

Dennis Gilmore

Sure Jason. this is Dennis now let me kind of recap the quarter, the third quarter. We were building through the quarter we ended up at 6,500 orders per day. In September we were running at 6,600 orders per day. October looks like we are going to run right around 6.300 orders per day and the mix is shifting just likely, Jason. It’s moving just slightly more to a refinance mix and right now about 54% refinances.

The Foreclosure has not impacted our revenue at this point. So here is how we are looking at it. We are going into the fourth quarter with a stronger inventory that we can piece the build at this level. We are clearly going to have a better than expected first quarter which is typically our weakest quarter.

Jason Deleeuw - Piper Jaffray

Okay. That’s encouraging. And then when you are thinking about capital structure and you talked about wanting to be conservative and so get better visibility. Are you speaking specifically on the home purchase market? What are your thoughts, what do we need to see in the marketplace for you guys to get more comfortable and just start to address the capital structure.

Dennis Gilmore

We are just being conservative right now, going into 2011. We are facing an MDA forecast right now, under a $1 trillion, which should be the lowest mark that we have faced in probably 15 years. We just think that the prudent think to for the company is to be conservative just overall, not just one business channel, just not one revenue line for us right now. Now we understand for us to reach a long-term objective of ROE of 10% to 12% we are going to need to deploy capital. We are recently looking at what we should do, what is the best deployment of our capital layer. So kind of going into ‘011 right now, we are going to be conservative. We also want to be opportunistic with our capital base. There could be some really interesting opportunities that could present themselves next year. People are actually operating in an unsure or less market.

Jason Deleeuw - Piper Jaffray

Okay. Lets just say the refi, I mean the refi is going to be bound, I mean are you focused on the home purchase market? Is it that thing that you need to get more confidence or…?

Dennis Gilmore

It is one of the key indicators. I mean clearly if we see some stability and actually an increase in the home purchase market, it will show a sign to all that our economy is just improving. We treat our refinance market as really transient. It could be hear today, gone tomorrow type of thing. So yes, at the end of the day we would like to see some improvement in the home purchase market.

Jason Deleeuw - Piper Jaffray

Okay great. And then one last quick one. The share repurchase, you’ve talked about seeking to get authorization in place. Is that still in the thinking and can we expect something in the near-term?

Dennis Gilmore

What we continue to do is just evaluate what the best things to put our capital. So we will continue to give that consideration, which is our overall philosophy right now. Just kind of heading in to this market is to stay conservative and keep a lot of capital on our sideline and potentially ahead of opportunities to deploy.

Operator

Our next question comes from Mark DeVries.

Mark DeVries - Barclays Capital

Dennis, I just wanted to clarify a point. When you indicated that the policy is that you don’t see a need to require a general indemnity on the foreclosed property transaction. Does that mean, you aren’t taking certain cases or are you doing on a limited basis for certain originations. Might be that your service is at a higher risk?

Dennis Gilmore

Let me add a few comments of that. I am probably going to have it overall, a legal council resort, really closely where our underwriters were put up in the last three weeks. As I said in the press release we put a lot of detail on that press release. Our overall view on the situation. We’ve spent a lot of time studying as you could imagine and we just generally concluded overall that we do not need general indemnity across all lenders. But with that kind of let me hand it to Seaton, he will probably add a couple of other comments.

Mark Seaton

Yes, Mark. I think this is typical heard question We are not going to ask for any indemnity with respect to any specific servicer. In the Title Insurance business generally when we insure a product, sometimes we ask for an indemnity on a case by case basis. And so these either the insurance of REO sell out are no different in our case by case basis. We may ask the seller to provide us an indemnity. This likely we may do in any other sales transaction, but nothing unique to the situation.

Mark DeVries - Barclays Capital

Okay. Any color you can provide or update on what the number to the year developing, negotiation with Fannie and Freddie to generate some type of global indemnity agreement for the entire industry?

Dennis Gilmore

We haven’t heard any more about any more development on that. I understand that Freddie and Fannie were sort of without trying get a general indemnity but so far we haven’t heard anything more developed on that and watch out for in the media in generally now.

Mark DeVries - Barclays Capital

Okay. And has there been any pushback from services in general, you’ve been approached for that running indemnity?

Dennis Gilmore

We understand that some servicers have indicated that under no circumstances would they provide an indemnity. That wasn’t in response to an upgrade-seeking ones from any particular servicer, but it’s our understanding out in the marketplace that several of them had said that they had confidence in their foreclosure practices and saw no reason to provide an indemnity and as indicated by our underwriting guidelines we don’t a see a need to request one.

Mark DeVries - Barclays Capital

Okay great. And then finally just any thoughts on, it seems like there have been at least few different approaches between you and your competitors on this issue. Any kind of thoughts on and what impact this might have on market share?

Mark Seaton

I would imagine that I mean again from what we heard from some of the servicer is that if any of the Title insurance company has required an indemnity, they may take business elsewhere. But as Denise mentioned we haven’t seen any impact at all in our orders yet. So who knows I think the servicer might be the better ones to answer that question, but certainly given what I mentioned about the position of some of these servicer they don’t want to provide an indemnity. I would imagine that there might be some market share shift but we haven’t seen anything yet.

Dennis Gilmore

Mark, this is Denise, we made our decision and based our underwriting on a risk perspective not from a market perspective.

Operator

Our next question comes from Tyler Bozynski.

Tyler Bozynski - Stephens Inc

Good morning guys I wanted maybe kind of drill own on the loss provision, kind of jumping around in the past couple of quarters and just maybe what’s your expectation on Q4 and we talked up the confidence you have that we wont continue to see some of these adversities inside that we’ve seen in some of the historical policy of yours going forward this?

Max Valdes

Yes sure. This is Max. The answer to that is we said we feel good about policy year 2010 and the loss rates for that are coming in the low 5%. The two policy years that were developing a little bit worse than expectations were 2006 and 2007.

So we feel hard to answer your question because you just never know what’s going to happen in a subsequence quarter. So expecting is no more adverse development than those two years, we’d expect to see your rate low to mid 5s. If we have a little bit more bleeding in those two years it could be closer to six.

Tyler Bozynski - Stephens Inc

Okay great. Did you talk about the percent of closed orders that were refinanced versus the mix this quarter?

Dennis Gilmore

We didn’t mention on the script but we’ve closed 51%, our closing ratio on refinancing were 51% and our current openings are running at about 54%.

Now I said I maybe sure I am clear on that. Our percentage of closing is 51% our closing ratio was about 66% for the quarter.

Tyler Bozynski - Stephens Inc

And you said in the percent of refi was kind of jumping up little bit here into October.

Max Valdes

Yes slightly. We moved from the very low 50’s to the mid 50’s.

Tyler Bozynski - Stephens Inc

So what you could continue maybe feel a little bit more pressure on the revenue per order going forward in to Q4? Do you think we bought under?

Dennis Gilmore

Yes let me give you some thought on that perspective. We had a nice up-tic year-over-year. On this mid quarter we were up about 10% on our average order or average revenue per order.

Now we are anticipating probably another drop of low to mid single digit going in to fourth quarter really driven by continuing on our shift up order in the refinance mix. That could be offset by increases in our commercial business if it continues then refi remain strong.

Tyler.Bozynski - Stephens Inc

Great and then last is kind of a bigger picture. You had talked the little bit about the new MDA forecast of less than the $1trillion and then you talked about its very long- term objectives in origination environment with a base of a $1.5 trillion.

Is there anything you are doing differently looking in to 2011 in the planning what are you looking at based on this new forecast or any changes there?.

Dennis Gilmore

Sure. Let just kind of give everybody a kind of an outlook different, just an overall outlook as we look in the 2011. Clearly we are looking at a challenging market, The MDA just came out with a forecast that under a trillion and I think as I mentioned earlier saying that’s positive first kind of thing under a trillion in $15 years.

We have built the pipeline strong into the fourth quarter. If that continues we probably than we could anticipate in the first quarter versus the fourth quarter, our weakest quarter seasonally. We are planning on it.

We restructured this business aggressively over the last three years we demonstrated I think very strong expense management to that point when I look third over third of revenues down 10% on the Title business and our margin is actually up. All of our key ratios are like what we want to be or improving.

We’ve maintained and we’re going to continuing to maintain a conservative balance sheet as we go into 2011, we’re optimistic actually. We actually think we would be very well positioned right now going into this market. We feel we are probably the most well positioned Title Company as we enter 2011.

We intend to continue to improve our performance actually going into 2011, it’s philosophically how we want to run the business. No matter what the market throws at us, we think we can continue to improve.

We don’t always succeed at, but that’s our objective. We do expect to be profitable throughout 2011. And the last comment, I’m going to make again on this is, we like our conservative balance sheet and if the market could be is bad as it may be, there could be good opportunity for us to deploy capital.

Tyler.Bozynski - Stephens Inc

Okay, great. I really appreciate that.

Operator

Our next question comes from Nat Otis.

Nat Otis - Keefe, Bruyette & Woods

Its actually just one question, a lot of good questions have been asked. Going into 2011, certainly it looks like things at least a week might start the year off a little better than expected with all the refi business going through.

Any thoughts on when and if things start to trail off as MDA has kind of implied what you can do from an expense standpoint to kind of what further you can do from expense standpoint to kind a restructure yourself to meet that lower estimate in 2011?

Dennis Gilmore

Sure. I’ll give you just a little bit more color on that. First of all we don’t have to do any kind of what I would call structurally, changing our structure. We’ve been working on that for now a couple of years.

So, we’re very well structured. Clearly for market trail, we’ll have to adjust some of our expenses but that’s kind of normal operation for us. So, now I think we’re just well positioned going into this market. And we’re going to deal with whatever the market throws at us.

But, as you heard from my comments also too, I think there is opportunities for our company to grow in this market. I think it will put challenges on other competitors and I think we can take advantage of that.

Nat Otis - Keefe, Bruyette & Woods

That’s fair enough. So, ultimately structure-wise, you’re pretty comfortable with where you are, it would be more of a blocking and tangling of headcount up or down, assuming orders started to trend of from here?

Dennis Gilmore

Yes. That’s exactly how we’re looking at it.

Operator

(Operator Instructions) Our next question comes from Adam Klauber.

Adam Klauber - McCrory Securities

Thanks. Good morning everyone. Commercial work during the quarter, how does the pipeline look for the next two quarters? And seasonally, is the fourth quarter usually pretty good quarter for Commercial?

Dennis Gilmore

Sure, let me give the some comments on that. Yes, definitely the Commercial business is built all year along for us. It looks like last year 2009 was definitely our low point. Now, when I say Commercial is improving I should put a little color on that. There is still a lot of distress transactions but from our perspective there is an increase in the velocity of the transaction, so that’s strong.

The second thing that’s encouraging to us is the size of our average revenue. It’s grown almost 50% over the last year. So the fourth quarter looks good and we are hoping the trend that’s still off ’10 goes in to ‘11.

Adam Klauber - McCrory Securities

Great. Seems like you went through a fair amount of effort to breakout the information and other category in the financials; does that represent a number of different line items as Mark mentioned, is that an area in the near-turn we can look for some growth?

Mark Seaton

Hi this is Mark. Yes, I mean that’s one of the reasons why we decided to breakout that line item, it’s because this can have a slightly different trajectory than our direct and our agent premiums .

We’ve got a lot of our international revenue included within the information and other, and its really non-risk related revenue and international is only going to grow at a higher rate overall than the domestic business, and so we have other emerging businesses like the appraisals, [research].

So that’s one of reasons why we broke it out, because we think it will have a different driver than just our core domestic business.

Adam Klauber - McCrory Securities

That’s great. Just a follow up on I know you have discussed 2011 which is always challenging, but I guess one summary question. If we are in an under actuary market, can you hold the margin we had in 2010-2011.

Dennis Gilmore

I could make a prediction on the margin I can just tell you we are going to continue to try to drive as efficiently as we can, just like we have for the last couple of years and the last comment I got one or two is, a lot of it will depend on what the contribution of the revenue is, if we see an increase in our resell business that will definitely help the margins.

Adam Klauber - McCrory Securities

Okay. And one last question with the foreclosure issue. Have you received any claims related to that or you’ve received any legal actions going to that?

Dennis Gilmore

At this stage no.

Operator

Our next question comes from John Boisclair.

John Boisclair - Dominic Brokerage

Yes gentlemen on the anniversarying of the rate increase that you saw on 2009,when those fully anniversary and are there any rate increase applications coming?

Dennis Gilmore

This is Dennis. The majority of them hit us in the second quarter of 2009 and so we are seeing the impact right now and that helped our average revenue per order. And in 2010 we are still seeking rate increases where our profit or where our returns are inadequate. But it’s in a must smaller scale around 6 or 7 per state and again that’s happening more in the second half of the year.

John Boisclair - Dominic Brokerage

And from your comment I would have assumed none of those states are the major states you are doing business in?

Dennis Gilmore

More of the minor states.

John Boisclair - Dominic Brokerage

Okay. You did some further break out, which is helpful this quarter. And last quarter I had asked in the call regarding breaking out Escrow. Can you give more thought to that so that we could better clarify on revenue of Escrow versus Title?

Mark Seaton

Yes, thanks for the question gentleman. This is Mark Seaton. We actually looked at it and at the end of the day our escrow revenue really tracks our insurance premiums really tightly, about a 95% collision because tentatively only when we get a high order we are going to get an escrow order in many parts of the country.

So breaking our escrow really doesn’t, it’s really, is a analog because premiums in our escrow are really going to behave exactly the same. So we looked at and we said what’s not going to behave the same. And that’s kind of where we came up with this information and other revenue.

Max Valdes

What might be a real line item. We thought that was just sort of a more useful measure for investors to analyze this part.

John Boisclair - Dominic Brokerage

Well is Esckow then included in the information side or in the Title side?

Max Valdes

Escrow is included in the Title side in our Direct Premium and Escrow fee. Because escrow revenue we put it there because it is somewhere risk-related and we do get Escrow claims. About 10% of our claims come from Escrow cases and therefore we thought it was appropriate to include Escrow revenue in direct premiums and escrow

John Boisclair - Dominic Brokerage

I guess what I was looking for was trying to see the Escrow profitability, trends and Title profitability trends broken out. So, we could see. Yes, I understand your point that if you have a Title you have an escrow. What’s the margins on each of those and how are those tracking I guess that was more the point or more the question?

Mark Seaton

Well we wouldn’t really break out Escrow earnings, profit and Title earnings, I mean typically you call kind of mixed in together and so we really wouldn’t break out. Title earning and escrow earnings separately. We just don’t really feel like it.

Dennis Gilmore

We did ask Mark to break out the revenue separately including the trends and times. I am not sure if that answers your question We’d be happy to talk offline if you like.

Operator

That’s all the time we have for questions today. That concludes this morning’s call. We would like to remind listeners that today’s call will be available for replay on the company’s website or by dialing 203-369-1888. The company would like you for your participation. This does concludes today’s conference call, you may now disconnect.

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