A.M. Best Affirms Ratings of Old Republic International Corporation’s Subsidiaries; Revises Some Outlooks to Negative

OLDWICK, N.J.--(BUSINESS WIRE)--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 (formerly known as Old Republic Group) (Chicago, IL) and its members and Bituminous Insurance Companies (Bituminous) (Rock Island, IL) and its members. A.M. Best also has affirmed the FSRs of A+ (Superior) and ICRs of “aa-” of Great West Casualty Company (Great West) (South Sioux City, NE) and Old Republic General Insurance Corporation (ORGENCO) (Chicago, IL). Concurrently, A.M. Best has affirmed the FSR of A- (Excellent) and ICR of “a-” of Old Republic Security Assurance Company (ORSAC) (Phoenix, AZ). The outlook for these ratings has been revised to negative from stable.

Additionally, A.M. Best has affirmed the FSR of A (Excellent) and ICR of “a+” of Old Republic Surety Company (ORSC) (Brookfield, WI) and 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. All companies are subsidiaries of Old Republic International Corporation (Old Republic) (NYSE:ORI) (Chicago, IL). (See link below for a detailed list of the companies and ratings.)

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 qualified management teams. ORGENCO’s ratings reflect its strong operating performance in recent years, while recognizing its strategic role among Old Republic’s property/casualty insurers, which principally 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 act to a lesser degree as a primary insurer to accommodate marketing and licensing limitations of affiliates. In addition, all these subsidiaries are afforded the financial flexibility of Old Republic, which at present has modest financial leverage.

Partially offsetting the subsidiaries’ strong financial and operational positions are their historical asbestos and environmental reserve developments and/or the possibility of earnings variability stemming from the competitive markets in which they participate. However, the longevity of these businesses has demonstrated their sustainability through underwriting cycles.

The revised rating outlook for Old Republic Insurance, Bituminous, Great West and ORGENCO is primarily based on the uncertainties associated with the current significant cyclical downturn in the housing and related mortgage finance markets and the adverse impact this is having on Old Republic’s mortgage guaranty operations. This, in turn, could potentially affect property/casualty companies within Old Republic General Insurance Group and has already had some adverse impact on Old Republic’s title agency operations. Old Republic and its subsidiaries also maintain exposure to the housing and related mortgage finance markets by virtue of their approximate aggregate 10% common stock ownership of MGIC Investment Corporation [NYSE:MTG] and 15% common stock ownership of The PMI Group Inc. [NYSE:PMI]. A.M.

Best believes these investments are a departure from Old Republic’s usual conservative stewardship. In the near term, the material decline in the value of these stocks has caused a moderate decline in subsidiary capital. Furthermore, should additional capital be needed in any of the subsidiaries, Old Republic will likely access the capital markets. Old Republic currently operates with a low debt-to-total capital ratio of approximately 1.5% and has a $1 billion shelf offering available; however, any capital raising activity could reduce financial flexibility in the near term.

ORSAC’s ratings recognize its adequate capitalization, strategic role within Old Republic and the financial flexibility provided by Old Republic. These factors are offset by ORSAC’s current assumed book of unprofitable consumer credit indemnity business, narrow product offerings and irregular premium growth in recent years. As of January 1, 2007, the company has been acting primarily as a reinsurer of consumer credit indemnity business produced by its affiliate, Old Republic Insurance Company (ORINSCO). This business mainly provides limited liability coverage for lenders on home equity loans and home equity lines of credit. ORSAC’s negative outlook is largely based on its weakened operating performance in recent quarters attributable to this assumed business from ORINSCO.

The ratings for ORSC acknowledge its excellent operating performance, solid capitalization, strict underwriting controls, conservative loss reserving practices and additional financial flexibility as a subsidiary of Old Republic. These positive rating factors are supported by the company’s historically consistent underwriting profitability, double-digit operating returns, as well as mix of business represented by contract surety, fidelity and other miscellaneous surety bonds. These positive rating factors are partially offset by ORSC’s elevated expense ratio, which largely reflects current industry practices and business concentration in surety markets.

For a complete list of Old Republic International Corporation’s FSRs and ICRs, please visit www.ambest.com/press/062405oldrepublicinternational.pdf.

Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.