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A.M. Best Affirms Ratings of Old Republic International Corp.’s Subsidiaries; Revises Outlook to Stable for Title Group


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Michael Russo

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Assistant Vice President

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FOR IMMEDIATE RELEASE

OLDWICK, N.J. - OCTOBER 03, 2013 12:00 AM (EDT)
A.M. Best Co. has affirmed the financial strength rating (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 Corporation 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 Corporation (ORGENCO) (Chicago, IL), 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 (Old Republic Union) and the FSR of B++ (Good) and ICR of “bbb+” of Old Republic Life Insurance Company (Old Republic Life). The outlook for these ratings is stable. These companies are headquartered in Chicago, IL. In addition, A.M. Best has revised the outlook to stable from negative and 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]). All companies are subsidiaries of Old Republic International Corporation (ORI).

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 offset by the highly competitive property/casualty markets that have developed over the past several years. In addition, despite the improved consolidated operating earnings reported to date in 2013 and the longer term authorization of ORI to continue to manage the runoff of its mortgage guaranty and consumer credit indemnity insurance books of business, the ratings reflect concerns that the runoff could potentially cause a detrimental impact on the overall enterprise’s credit quality.

ORGENCO’s ratings acknowledge its historically strong operating performance and adequate risk-adjusted capitalization while recognizing its strategic 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% 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 2011, primarily due to the group adopting Old Republic’s more conservative reserving philosophy. In addition, as a result of higher projected ultimate claims costs, adverse loss reserve development continued to be reported in 2012 and had a detrimental impact on the group’s underwriting performance.

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 revision of the outlook from negative to stable reflects ORTIG’s somewhat improved risk-adjusted capitalization and decline in premium leverage as a result of strong statutory surplus growth in excess of premium growth in 2012. While the group has substantially increased its premium volume in recent years, operating results have trended favorably since 2010 as a result of its improved underwriting performance. In addition, the significant market share increase has enhanced the group’s presence, allowing it to become more competitive. Offsetting these positive rating factors are the challenges the group faces in order to maintain its positive trend of improved operating performance and risk-adjusted capitalization as it manages potential earnings volatility due to recently rising mortgage interest rates and an ever-evolving real estate market, which is closely aligned with title insurance operating performance trends.

The ratings of Old Republic Union acknowledge its excellent risk-adjusted capitalization, 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 historic operating performance as well as the synergies it realizes as an affiliate of Great West. Partially offsetting these positive rating factors are the company’s narrow product offering and the current soft market conditions in Canada, which have translated into the company’s recent uncharacteristically below-average operating performance.

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 limited business profile, as the majority of its business has been put in runoff, and continued declines in total premium levels on both active and run-off products.

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 further stabilization or improvement in its overall financial strength and credit quality. 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. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

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