AM Best


A.M Best Affirms Ratings & Maintains Negative Outlook on Most Old Republic Intl Corp Subsidiaries; Upgrades Ratings of PMA Group


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W. Dolson Smith, CFA

Senior Financial Analyst

(908) 439-2200, ext. 5379

w.dolson.smith@ambest.com

Michael J. Lagomarsino, CFA

Assistant Vice President

(908) 439-2200, ext. 5810

michael.lagomarsino@ambest.com

Rachelle Morrow

Senior Manager, Public Relations

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Jim Peavy

Assistant Vice President, Public Relations

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james.peavy@ambest.com


FOR IMMEDIATE RELEASE

OLDWICK, N.J. - DECEMBER 01, 2010 12:00 AM (EST)
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 all 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 Corporation (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 upgraded the FSR to A (Excellent) from A- (Excellent) and the ICRs to "a" from "a-" of The PMA Insurance Group (PMA) and its property/casualty members. Additionally, A.M. Best has upgraded the ICR to "bbb" from "bbb-" and debt ratings of PMA Companies, Inc. (Blue Bell, PA). Both the group and company's ratings have been removed from under review with positive implications and assigned a stable outlook.

A.M. Best also has downgraded the FSR to B++ (Good) from A- (Excellent) and the ICR to "bbb" from "a-" of Old Republic Security Assurance Company (ORSAC) (Phoenix, AZ). The outlook for both ratings has been revised to stable from negative.

At the same time, A.M. Best has affirmed the FSR of A (Excellent) and ICR of "a" of Old Republic Union Insurance Company (Old Republic Union) and the FSR of A- (Excellent) and ICR of "a-" of Old Republic Life Insurance Company (both domiciled in Chicago, IL). The outlook for these ratings is stable. All companies above are subsidiaries of Old Republic International Corporation (Old Republic Corp.) (headquartered in Chicago, IL) [NYSE:ORI]. (See link below for a detailed listing 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 Corp. since 2007. While Old Republic Corp.'s consolidated operating losses for the first nine months of 2010 appear to have moderated to some degree in comparison with losses reported in 2008 and 2009, the increased losses in the mortgage guaranty segment in the third quarter of 2010 and continued deterioration in the profitability of the general insurance property/casualty segment are of concern. Old Republic Corp.'s mortgage guaranty, title and general insurance segments all have exposure to the current weak employment and housing and related mortgage markets, the general insurance segment largely as a result of its consumer credit indemnity (CCI) business. In addition, the underwriting and overall profitability of the general insurance segment is being pressured by the increasingly competitive property/casualty market in general over the past several years.

Improving credit markets and segments of the U.S. economy, recoveries in equity and fixed income markets and Old Republic Corp.'s still modest level of financial leverage (proforma debt-to-total capital of approximately 10% at September 30, 2010, including PMA Companies, Inc.'s debt) have contributed to A.M. Best's somewhat sanguine view of Old Republic Corp.'s financial condition and financial flexibility, while also supporting A.M. Best's affirmation of most of Old Republic Corp.'s subsidiaries ratings. Nevertheless, Old Republic Corp.'s exposure to the volatility and uncertainties of the current weak employment and housing and related mortgage markets remains substantial. Should the company's consolidated operating losses trend higher from current levels or exceed expectations, A.M. Best would need to reassess its current view of Old Republic Corp., and selected subsidiary rating downgrades would appear probable.

The affirmation of the ratings of Old Republic Insurance, Bituminous and Great West recognizes their strong individual capitalizations, historically solid profitability, 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 Corp.'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 Corp. 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 Corp., and in the case of Old Republic Insurance and ORGENCO, also their highly unprofitable books of CCI business.

The affirmation of ORTIG's ratings reflects the group's conservative reserving practices and solid risk-adjusted capitalization, which supports its current ratings. The group has seen a modest rebound in operating performance in 2010. Nevertheless, ORTIG faces challenges in sustaining near-term profitability by controlling expenses and managing earnings and revenue volatility resulting from continued weakness in the housing market, as the demand for title insurance products is largely derived from residential real estate transactions. However, the group, which has a nationally diversified title premium base, has rapidly increased its book of business in 2009 and 2010, nearly doubling its national market share from approximately 6% to 11%. The future direction of the group's ratings and/or outlook will depend on the successful management of this recent growth, thereby sustaining improving operating trends, while maintaining adequate risk-adjusted capitalization.

The upgrade in the ratings of PMA and its immediate parent, PMA Companies, Inc. (formerly known as PMA Capital Corporation) acknowledges Old Republic Corp.'s acquisition of PMA Companies, Inc. on October 1, 2010. PMA should benefit from being part of a financially stronger and higher profile organization that should enhance growth opportunities and result in operating efficiencies. PMA is being operated as a separate Old Republic subsidiary within Old Republic General Insurance Group, retaining existing senior management and its home offices in Blue Bell, which should help mitigate risks of integration. PMA will be focused on production, underwriting and claims management, while investments, capital management and other non-operating areas will be managed by Old Republic, including PMA Companies, Inc. no longer having the responsibilities of a public company. PMA is receiving explicit financial support from its affiliates, Old Republic Insurance Company (ORINSCO) and ORGENCO as a result of its 30% and 10% quota share agreements with these companies, respectively, effective October 1, 2010. PMA will significantly increase Old Republic General Insurance Group's mix of workers' compensation to approximately one-third, while providing greater diversification in the eastern United States.

The downgrading of the ratings of ORSAC recognizes the continued significant decline in underwriting and substantial operating losses of its CCI business. This business, which accounts for all of ORSAC's net writings, is assumed from its affiliate, ORINSCO, which writes the business directly. ORINSCO has not written any new CCI business since 2008 and does not plan to do so until the product is re-underwritten and there is demand for the product in the marketplace.

For a complete listing of Old Republic International Corporation subsidiaries' FSRs, ICRs and debt ratings, please visit please visit Old Republic Corporation.

The principal methodology used in determining these ratings is Best's Credit Rating Methodology - Global Life and Non-Life Insurance Edition, which provides a comprehensive explanation of A.M. Best's rating process and highlights the different rating criteria employed. Additional key criteria utilized include: "Risk Management and the Rating Process for Insurance Companies"; "Understanding BCAR for Property/Casualty Insurers"; "Understanding BCAR for Canadian Property/Casualty Insurers"; "BCAR for Title Insurance Companies"; "BCAR for Life and Health Insurers"; "The Treatment of Terrorism Risk in the Rating Evaluation"; "Rating Members of Insurance Groups"; "A.M. Best's Ratings & the Treatment of Debt"; "Equity Credit for Hybrid Securities"; "A.M. Best's Title Insurance Rating Methodology"; "A.M. Best's Liquidity Model for U.S. Life Insurers"; and "Assessing County Risk." Methodologies can be found at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source.

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