A.M. Best Affirms Ratings of Old Republic International Corp.'s Subsidiaries; Maintains Negative Outlook on Most Ratings

A.M. Best Co. has affirmed the financial strength rating (FSR) of A+ (Superior) and issuer credit ratings (ICR) of "aa-" of Old Republic Insurance (Chicago, IL), Bituminous Insurance Companies (Bituminous) (Rock Island, IL) and their respective property/casualty members.

In addition, A.M. Best has affirmed the FSR of A+ (Superior) and ICR of "aa-" of Great West Casualty Company (Great West) (South Sioux City, NE). The outlook for the above ratings is negative.

Concurrently, A.M. Best has affirmed the FSR of A (Excellent) and ICRs of "a+" of Old Republic General Insurance Corp. (ORGENCO) (Chicago, IL), Old Republic Title Insurance Group (ORTIG) (Minneapolis, MN) and its members, Old Republic Surety Company (ORSC) (Brookfield, WI) and Old Republic Insurance Company of Canada (Hamilton, Ontario). The outlook for the FSRs is stable, while the outlook for the ICRs is negative.

A.M. Best also has affirmed the FSR of A (Excellent) and ICR of "a" of Old Republic Union Insurance Company (Old Republic Union) (Chicago, IL). The outlook for these ratings is stable.

Additionally, A.M. Best has affirmed the FSR of A- (Excellent) and ICRs of "a-" of Old Republic Security Assurance Company (ORSAC) (Phoenix, AZ) and Old Republic Life Insurance Company (Old Republic Life) (Chicago, IL). The outlook for ORSAC's ratings is negative, while the outlook for the ratings of Old Republic Life is stable. All companies are subsidiaries of Old Republic International Corp. (Old Republic) (Chicago, IL) (NYSE: ORI). (See link below for a detailed list of the companies and ratings.)

These ratings reflect A.M. Best's review of the amount of deterioration in the consolidated financial condition and financial flexibility of Old Republic in recent quarters. While substantial operating and net losses continued to be reported by Old Republic in the first half of 2009, they appear to have leveled off to some degree as compared with sharply rising trends in 2007 and 2008. The consolidated operating losses are resulting primarily from Old Republic's mortgage guaranty operations, and to a far lesser degree, its title insurance business, while a declining trend in the profitability of its general insurance property/casualty operations also is a contributing factor. Old Republic's net losses were particularly high in 2008, reflecting substantial impairment losses of equity investments, including sizable investment positions in MGIC Investment Corp., The PMI Group, Inc. and LandAmerica Financial Group, Inc.

The recent leveling off of Old Republic's operating losses, indications of improving credit markets and segments of the U.S. economy, recoveries in equity and fixed income markets and Old Republic's still modest level of financial leverage (debt-to-total capital of 9.0 percent at June 30,) have contributed to A.M. Best's somewhat more sanguine view of the company's financial condition and financial flexibility in recent months, while also supporting A.M. Best's current affirmation of Old Republic's subsidiary ratings. Nevertheless, Old Republic's exposure to the volatility and uncertainties of the current housing and related mortgage market remain substantial. Should the company's consolidated operating and net losses trend higher from current levels and exceed expectations, A.M. Best would need to reassess its current view of Old Republic, and selected subsidiary rating downgrades would appear probable.

The affirmation of the ratings of Old Republic Insurance, Bituminous and Great West reflects their strong individual capitalizations, solid profitability in recent years, well-recognized franchises, expertise in their respective individual business specialties, as well as their conservative and experienced management teams. ORGENCO's ratings acknowledge its strong operating performance in recent years, while recognizing its strategic role among Old Republic's property/casualty insurers. ORGENCO's principal role is to reinsure the business of affiliates, act as the direct writer of a material book of construction business for an affiliated Bermuda subsidiary, and to a lesser degree, act as a primary insurer to accommodate marketing and licensing limitations of affiliates. A.M. Best's expectations are that the management of Old Republic will look to sources other than these insurance operations for additional capital and liquidity, when needed. The negative outlook on the ratings primarily reflects the uncertainty associated with the continued consolidated operating losses of Old Republic.

ORTIG's ratings are based on its strong capitalization and conservative reserving practices. The group, which has seen a modest rebound in operating performance in the first half of 2009, nevertheless faces challenges in sustaining near-term profitability by controlling expenses and managing earnings and revenue volatility due to continued weakness in the housing market, as the demand for title insurance products is largely derived from transactions in residential real estate. The group, which has a nationally diversified title premium base, also has recently entered into a joint venture with the Attorneys Title Insurance Fund of Florida, under the terms of which the group is expected to write nearly $200 million of additional premium annually; thus, significantly increasing the group's market share in Florida.

For a complete listing of Old Republic International Corp. subsidiaries' FSRs, ICRs and debt ratings: ambest.com/press/092905oldrepublic.pdf.