CONTACTS:
FOR IMMEDIATE RELEASE
OLDWICK, N.J. - AUGUST 16, 2011 12:00 AM (EDT)
A.M. Best Co. has downgraded the financial strength ratings (FSR) to A (Excellent) from A+ (Superior) and issuer credit ratings (ICR) to "a+" from "aa-" of Old Republic Insurance, Bituminous Insurance Companies (Bituminous) (Rock Island, IL) and their respective property/casualty members, as well as Great West Casualty Company (Great West) (South Sioux City, NE). The outlook for all the above ratings has been revised to stable from negative.
Concurrently, A.M. Best has downgraded the ICR to "a" from "a+" and affirmed the FSR of A (Excellent) of Old Republic General Insurance Corporation (ORGENCO), Old Republic Surety Company (ORSC) (Brookfield, WI) and Old Republic Insurance Company of Canada (Old Republic Canada) (Hamilton, Ontario). The outlook for the ICR has been revised to stable from negative, while the outlook for the FSR is stable.
A.M. Best also has affirmed the FSR of A (Excellent) and ICR of "a" of The PMA Insurance Group (PMA) and its property/casualty members. The outlook for these ratings is stable. Additionally, A.M. Best has withdrawn the ICR of "bbb" and debt ratings of PMA Companies, Inc. (Blue Bell, PA) due to the acquisition of the company by Old Republic International Corporation (ORI) [NYSE:ORI] and the assumption of its debt by ORI.
At the same time, A.M. Best has downgraded the FSR to A- (Excellent) from A (Excellent) and ICR to "a-" from "a" of Old Republic Union Insurance Company (Old Republic Union). The outlook for both ratings is stable.
Additionally, A.M. Best has downgraded the FSR to B+ (Good) from B++ (Good) and ICR to "bbb-" from "bbb" of Old Republic Security Assurance Company (ORSAC) (Phoenix, AZ). The outlook for both ratings has been revised to negative from stable.
A.M. Best also has downgraded the ICR to "a" from "a+" and affirmed the FSR of A (Excellent) of Old Republic Title Insurance Group (ORTIG) (Minneapolis, MN) and its members. The outlook for the FSR has been revised to negative from stable, while the outlook for the ICR is negative.
Concurrently, A.M. Best has downgraded the FSR to B++ (Good) from A- (Excellent) and ICR to "bbb+" from "a-" of Old Republic Life Insurance Company (Old Republic Life). The outlook for both ratings is stable.
All companies above are subsidiaries of ORI and headquartered in Chicago, IL, unless otherwise specified. (See link below for a detailed listing of the companies and ratings.)
These rating actions largely reflect A.M. Best's review of ORI's substantially greater operating losses reported in its second quarter 2011 earnings release, primarily attributable to its mortgage guaranty operations, where claim costs have significantly increased in recent quarters, net premiums earned and net investment income have continued to decline and where operating losses were particularly large in the second quarter. Also of significant importance in the company's second quarter earnings release and conference call with investors was the announcement of ORI's intention to place the mortgage guaranty flagship carrier's (Republic Mortgage Insurance Company—RMIC) existing book of business in run off. These second quarter 2011 disclosures, expectations of further substantial mortgage guaranty losses in the foreseeable future and increased financial leverage in 2011 at ORI have somewhat weakened the financial strength of ORI.
Management has indicated that the run-off business would be managed within the constraints of RMIC's current capital base, and that this amount would be ORI's ultimate potential liability. A.M. Best acknowledges that RMIC's legal liability is limited to its shareholders' capital, and that, as a matter of enterprise-wide risk management, ORI does not extend parent holding company guaranties for its insurance subsidiaries' liabilities. As a result, A.M. Best calls into question ORI's commitment to all policyholders entity wide should other insurance subsidiaries encounter financial stress. This along with the weakened financial strength of ORI was the primary drivers of the downgrades for Old Republic Insurance, Great West and Bituminous. These factors also were the drivers of the rating actions for ORGENCO, ORSC, Old Republic Union, ORSAC, Old Republic Canada and Old Republic Life for which rating enhancement that previously had been afforded was removed.
The affirmation of PMA's ratings largely reflects the financial support provided by affiliates through quota share agreements.
ORTIG's FSR was affirmed due to its solid liquidity and strong balance sheet. The downgrading of its ICR reflects the company's increasing underwriting leverage trend from significant premium growth outpacing increases in surplus. The outlook for the FSR was revised to negative from stable due to the group's potential challenge in managing growth and sustaining profitability in the current uncertain economic environment and ongoing weakness in the housing market.
For a complete listing of Old Republic International Corporation and its subsidiaries' FSRs, ICRs and debt ratings, please visit Old Republic International 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"; "Rating Members of Insurance Groups"; "Understanding BCAR for Property/Casualty Insurers"; "Understanding BCAR for Canadian Property/Casualty Insurers"; "BCAR for Title Insurance Companies"; "BCAR for Life and Health Insurers"; "A.M. Best's Title Insurance Rating Methodology"; "Catastrophe Analysis in A.M. Best Ratings"; "Natural Catastrophe Stress Test Methodology"; "A.M. Best's Ratings & the Treatment of Debt"; "Equity Credit for Hybrid Securities"; "A.M. Best's Liquidity Model for U.S. Life Insurers"; "The Treatment of Terrorism Risk in the Rating Evaluation"; and "Assessing Country 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.