A.M. Best Affirms Ratings of Most of Old Republic International Corp.’s Subsidiaries [Manufacturing Close – Up]

A.M. Best Co. has affirmed the financial strength ratings (FSR) of A (Excellent) and issuer credit ratings (ICR) of "a+" of Old Republic Insurance Company (ORINSCO) (Greensburg, PA) and Old Republic Lloyds of Texas (Dallas, TX) (collectively referred to as Old Republic Insurance), Bituminous Casualty Corp. and Bituminous Fire & Marine Insurance Company (both domiciled in Rock Island, IL) (collectively referred to as Bituminous Insurance Companies) and Great West Casualty Company (Great West) (South Sioux City, NE).

Concurrently, A.M. Best has affirmed the FSR of A (Excellent) and ICRs of "a" of Old Republic General Insurance Corp. (ORGENCO), Old Republic Surety Company (ORSC) (Brookfield, WI) and Old Republic Insurance Company of Canada (Old Republic Canada) (Hamilton, Ontario). A.M. Best also has affirmed the FSR of A (Excellent) and ICR of "a" of Pennsylvania Manufacturer's Association Insurance Company, Manufacturers Alliance Insurance Company and Pennsylvania Manufacturers Indemnity Company (collectively referred to as the PMA Group). These companies are domiciled in Blue Bell, PA.

At the same time, A.M. Best has affirmed the FSR of A- (Excellent) and ICR of "a-"of Old Republic Union Insurance Company (Chicago, IL) (Old Republic Union). The outlook for all the above ratings is stable.

In addition, A.M. Best has affirmed the FSR of A (Excellent) and ICRs of "a" of Old Republic National Title Insurance Company (Minneapolis, MN), Mississippi Valley Title Insurance Company (Madison, MS) and American Guaranty Title Insurance Company (Oklahoma City, OK) (collectively referred to as the Old Republic Title Insurance Group [ORTIG]). The outlook for these ratings is negative.

Concurrently, A.M. Best has affirmed the FSR of B++ (Good) and ICR of "bbb+" of Old Republic Life Insurance Company (Old Republic Life). The outlook for both ratings is stable.

Additionally, A.M. Best has withdrawn the FSR of B+ (Good) and ICR of "bbb-" of Old Republic Security Assurance Company (Phoenix, AZ) as the company is largely dormant following the April 1, commutation of an intercompany quota share agreement with its affiliate, ORINSCO.

The above companies are subsidiaries of Old Republic International Corp. (ORI) and are headquartered in Chicago, IL, unless otherwise specified.

These ratings reflect the continued uncertainty surrounding ORI's run-off of its mortgage guaranty and consumer credit indemnity insurance books of business and the detrimental impact the run off may have on the overall enterprise's credit quality. Currently, Republic Mortgage Insurance Company (RMIC) is operating under an Order of Supervision from the North Carolina Department of Insurance. Should RMIC experience receivership, insolvency, rehabilitation or reorganization, ORI could be obligated to accelerate the repayment of its current debt obligations. Although ORI maintains adequate capital and liquidity to repay its debt obligation if called, and that ORI could possibly renegotiate the terms or raise additional capital should the need arise, the possibility that certain operating companies may have greater dividend payment obligations in order to service this repayment, as well as the immediate negative impact such a payment would have on the overall organization's financial strength, remains an area of concern for A.M. Best.

The affirmation of the ratings of Old Republic Insurance, Bituminous Insurance Companies and Great West recognizes their strong individual risk-adjusted capital positions, historically solid profitability, expertise in their respective individual business specialties and well-recognized franchises. These strengths are partially off set by the highly competitive property/casualty markets that have developed over the past several years, which have somewhat hindered growth in net written premiums.

ORGENCO's ratings acknowledge its historically strong operating performance and solid risk-adjusted capitalization while recognizing its principal role among ORI'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 act as a primary insurer to accommodate marketing and licensing limitations of affiliates. These strengths are somewhat offset by ORGENCO's concentrated source of business and the cyclicality of its construction business.

PMA Group's ratings reflect its expertise in providing workers' compensation, and to a lesser degree, other commercial coverages to mid- to large-sized businesses in select industries and the financial and operational support being provided by its affiliates as reflected in the 40 percent quota share with ORINSCO and ORGENCO. These strengths are somewhat offset by PMA Group's product concentration in workers' compensation coverages and substantial adverse prior year loss reserve development in 2010, and to a lesser extent in 2011, which was primarily due to the group adopting Old Republic's more conservative reserving philosophy.

ORTIG's ratings recognize its strong liquidity and reserving practices, which remain among the most conservative in the title industry. Additionally, approximately two-thirds of ORTIG's premiums and fees are generated through independent agents. This enables ORTIG to somewhat better manage down cycles as fixed costs are generally lower for that distribution channel. The negative outlook reflects ORTIG's somewhat weakened risk-adjusted capitalization as reflected by the increasing trend in premium leverage, and the challenges facing the group as it manages potential earnings volatility as it navigates the current weak overall macroeconomic conditions in the United States and its consequent impact upon real estate market activity.

The ratings of Old Republic Union acknowledge its excellent risk- adjusted capitalization, generally positive pretax operating profitability and its strategic role within Old Republic General Insurance Group, operating as a surplus lines carrier to Great West. These strengths are somewhat offset by Old Republic Union's limited business profile as evidenced by its modest net premiums, which combined with fluctuations in prior year loss reserve development primarily associated with discontinued and old assumed business, resulted in volatility of underwriting performance.

ORSC's ratings reflect its excellent operating performance, solid risk-adjusted capitalization, strict underwriting controls and conservative loss reserving practices. These positive rating factors are supported by ORSC's historically consistent net underwriting profitability, double-digit operating returns, low net underwriting leverage, as well as mix of business represented by contract surety bonds, fidelity bonds and other miscellaneous surety bonds. These strengths are offset by ORSC's elevated underwriting expense ratio.

The ratings of Old Republic Insurance Company of Canada are based on its excellent risk-adjusted capitalization and solid operating performance as well as the synergies it realizes as an affiliate of Great West.

The ratings of Old Republic Life Insurance Company reflect its favorable level of risk-adjusted capitalization and its consistent operating profitability. Partially offsetting these factors are the challenges with sustaining premium levels on a renewal basis as its business profile is limited due to the majority of its business having been placed in run off.

While A.M. Best believes ORI's operating subsidiaries ratings are well positioned at their current levels, factors that may lead to positive rating actions include a trend of strong underwriting and operating performance that exceeds industry peers over time while enhancing risk-adjusted capitalization, or if ORI were to experience a stabilization or improvement in its overall financial strength and credit quality, due in part to greater clarity regarding its run- off books of business. However, factors that may lead to negative rating actions include deterioration in underwriting and operating performance to a level below peers, an erosion of surplus that causes a significant decline in risk-adjusted capital to a level short of supporting current ratings, or if ORI experienced a decline in its overall financial strength and credit quality.

The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process. Key criteria utilized include: "Risk Management and the Rating Process for Insurance Companies"; "BCAR for Title Insurance Companies"; "Rating Title Insurance Companies"; "Insurance Holding Company and Debt Ratings"; "Catastrophe Analysis in A.M. Best Ratings"; "The Treatment of Terrorism Risk in the Rating Evaluation"; "Understanding BCAR for Property/Casualty Insurers"; and "Rating Members of Insurance Groups." Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

More information:

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