Best’s News & Research Service - December 18, 2015 11:56 AM (EST)
A.M. Best Affirms Ratings of Most Subsidiaries of Old Republic International Corporation
- December 18, 2015 11:56 AM (EST)
Oldwick //BestWire// - A.M. Best has affirmed the financial strength rating (FSR) of A+ (Superior) and the issuer credit ratings (ICR) of “aa-” of Old Republic Insurance Company (Greensburg, PA) and Old Republic Lloyds of Texas (Dallas, TX) (collectively referred to as Old Republic Insurance Companies [ORINSCO]); BITCO General Insurance Corporation and BITCO National Insurance Company (both domiciled in Rock Island, IL) (collectively referred to as BITCO Insurance Companies); and Great West Casualty Company (Great West) (South Sioux City, NE).
Additionally, A.M. Best has affirmed the FSR of A (Excellent) and the ICRs of “a” of Old Republic General Insurance Corporation (ORGENCO) (Chicago, IL) and Old Republic Surety Company (ORSC) (Brookfield, WI). A.M. Best also has affirmed the FSR of A (Excellent) and the ICRs of “a” of Pennsylvania Manufacturers’ Association Insurance Company (Blue Bell, PA), Manufacturers Alliance Insurance Company (Blue Bell, PA) and Pennsylvania Manufacturers Indemnity Company (Blue Bell, PA) (collectively referred to as the PMA Insurance Companies) (PMA); and Old Republic National Title Insurance Company (Tampa, FL), 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]).
At the same time, A.M. Best has upgraded the ICR to “a+” from “a” and affirmed the FSR of A (Excellent) of Old Republic Insurance Company of Canada (Old Republic Canada) (Hamilton, Ontario). Additionally, A.M. Best has upgraded the FSR to A (Excellent) from A- (Excellent) and the ICR to “a” from “a-” of Old Republic Union Insurance Company (Old Republic Union), and affirmed the FSR of B++ (Good) and the ICR of “bbb+” of Old Republic Life Insurance Company (Old Republic Life). These companies are headquartered in Chicago, IL. The outlook for all ratings is stable. All companies are subsidiaries of Old Republic International Corporation (ORI).
The ratings of ORINSCO reflect the group’s adequate risk-adjusted capitalization, excellent historical profitability and its flagship carrier leadership position within the Old Republic General Insurance Group. ORINSCO benefits from its expertise within the alternative risk transfer (ART) market and specialty commercial segments, as well as management’s emphasis on loss control and commitment to delivering quality insurance-related services. Partially offsetting these positive factors are ORINSCO’s significant reinsurance recoverables, which are largely mitigated by the use of collateral, and concentration in workers’ compensation insurance as a result of its 30% quota share agreement with PMA Insurance Group, which has adversely affected underwriting performance in recent years as a result of adverse prior-year loss reserve development experience by PMA, as well as the highly competitive property/casualty markets that have developed over the past several years.
The ratings of BITCO Insurance Companies reflect the group’s strong risk-adjusted capitalization, conservative balance sheet, evidenced by consistently favorable prior accident year development, and solid overall liquidity. The ratings also reflect the group’s positive operating performance over time and through underwriting cycles, due in large part to its loss control and risk management expertise as a specialty underwriter of risk transfer programs for the construction, oil and gas extraction and forest products industries. These positive rating factors are partially offset by the ongoing competitive environment in its property/casualty markets, and, to a lesser degree, its above-average common stock investment portfolio leverage.
The ratings of Great West reflect its excellent risk-adjusted capitalization, conservative balance sheet, trend of strong underwriting and operating profitability and its specialty niche underwriting expertise as a leading commercial automobile insurer. These positive rating factors are partially offset by its concentration of business in the commercial trucking segment, and the cyclicality and variability associated with this particular market, as evidenced by actual experience over the long term and the company’s above-average common stock investment portfolio leverage.
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 its 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 its affiliates. These positive rating factors are somewhat offset by ORGENCO’s concentrated source of business, the cyclicality of its construction business and negative impact that the quota share with PMA has had on its results, due to reporting adverse loss reserve development.
The ratings of PMA reflect its expertise in providing workers’ compensation insurance, and, to a lesser degree, other commercial coverages to mid- to large-size 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 positive rating factors are somewhat offset by PMA Group’s product concentration in workers’ compensation coverages and substantial adverse prior-year loss reserve development over the past several years primarily due to higher projected ultimate claims costs that has adversely affected underwriting results.
The ratings of ORTIG recognize its strong liquidity and reserving practices, which remain among the most conservative in the title industry. 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, and enhanced the group’s presence, allowing it to become more competitive. Somewhat offsetting these positive rating factors are the challenges ORTIG faces in order to maintain its positive trend of improved operating performance and risk-adjusted capitalization, as well as the group’s higher underwriting leverage measures due to the rapid increase in premium volume over the past five years.
The rating upgrade of Old Republic Canada is based on its strong risk-adjusted capitalization and solid operating performance, as well as the support from the synergies it realizes as an affiliate of Great West. Partially offsetting these positive rating factors are the company’s narrow product offerings and the current soft market conditions in Canada. The upgrade to the ratings of Old Republic Union reflects the explicit support being provided by ORINSCO in the form of a 100% quota share agreement, which was put in place in anticipation of the company acting as a direct writer in Old Republic International’s new joint venture, Old Republic Specialty Insurance Underwriters, Inc. (ORSIU), which will focus its operations on program business, and on alternative market insurance needs of public entity and non-profit organizations. The ratings also acknowledge the company’s excellent risk-adjusted capitalization and its strategic role within Old Republic General Insurance Group, operating as a surplus lines carrier to Great West. These positive rating factors 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.
The ratings of ORSC 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 and low net underwriting leverage, as well as a mix of business represented by contract surety bonds, fidelity bonds and other miscellaneous surety bonds. These strengths are offset by ORSC’s modest business profile and elevated underwriting expense ratio.
The ratings of Old Republic Life reflect its strong risk-adjusted capitalization and steady growth in its accident and health business, which is marketed through an affiliated property/casualty insurer. Partially mitigating rating factors include a declining business profile, as most product lines are in run-off, volatility in earnings in recent years and a decline in absolute capital, mainly due to dividends to its parent.
While in recent years there have been concerns regarding the uncertainties associated with ORI’s run-off of its mortgage insurance and consumer credit indemnity insurance books of business, these concerns have moderated given the recent improvement in ORI’s run-off books of business, improved consolidated earnings and solid overall liquidity, as well as A.M. Best’s expectation that the run-off books of business will play less of a role in relation to ORI’s continuing operations. Additionally, ORI maintains relatively strong interest coverage and a modest debt-to-total capital ratio of 20.2%, as of Sept. 30, 2015.
This press release relates to rating(s) that have been published on A.M. Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please visit A.M. Best’s Ratings & Criteria Center.
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