AM Best Information Services

OCTOBER 03, 2014 10:18 AM (EDT)

A.M. Best Upgrades Ratings of Certain Subsidiaries of Old Republic International Corporation

Michael Russo
Senior Financial Analyst—P/C
(908) 439-2200, ext. 5372

Michael Lagomarsino, CFA
Assistant Vice President—P/C
(908) 439-2200, ext. 5810

Keith Behrmann
Financial Analyst—L/H
(908) 439-2200, ext. 5733

Rosemarie Mirabella
Assistant Vice President—L/H
(908) 439-2200, ext. 5892

Christopher Sharkey
Manager, Public Relations
(908) 439-2200, ext. 5159

Jim Peavy
Assistant Vice President, Public Relations
(908) 439-2200, ext. 5644


LONDON - OCTOBER 03, 2014 10:18 AM (EDT)
A.M. Best has upgraded the financial strength rating (FSR) to A+ (Superior) from A (Excellent) and the issuer credit ratings (ICR) to "aa-" from "a+" 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).

Concurrently, A.M. Best has affirmed the FSR of A (Excellent) and the 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 the ICRs of "a" of Pennsylvania Manufacturer's 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); and 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]).

At the same time, A.M. Best has affirmed the FSR of A- (Excellent) and the ICR of "a-"of Old Republic Union Insurance Company (Old Republic Union) and 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 rating upgrades of ORINSCO, BITCO Insurance Companies and Great West reflect the removal of ratings drag as a result of the recent improvements in ORI's run-off books of business, improved consolidated earnings, solid overall liquidity (including additional funds raised by its recent senior note issuance), as well as AM. Best's expectation that the run-off books of business will play less of a role as it relates to ORI's continuing operations. The ratings also recognize these companies' 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, the quota share agreement between ORINSCO and PMA has negatively affected ORINSCO's results due to the adverse loss reserve development reported by PMA over the past several years.

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 strengths 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.

The ratings of PMA Insurance Companies reflect its expertise in providing workers' compensation, 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 strengths 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.

The ratings of ORTIG 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. 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 increased 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.

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, 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 strong 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 fluctuating operating performance.

The ratings of Old Republic Life Insurance Company reflect its favorable level of risk-adjusted capitalization and sales growth in its occupational accident coverage product. Partially offsetting these factors are the company's declining trend in operating earnings and its limited business profile, as most products have been placed in run-off mode.

While A.M. Best believes ORI's operating subsidiaries' ratings are well positioned at their current levels, 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 experiences 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

Key insurance criteria reports utilized:

  • Rating Members of Insurance Groups

  • Risk Management and the Rating Process for Insurance Companies

  • Understanding BCAR for Property/Casualty Insurers

  • The Treatment of Terrorism Risk in the Rating Evaluation

  • Rating Surety Companies

  • Catastrophe Analysis in A.M. Best Ratings

  • BCAR for Title Insurance Companies

  • Rating Title Insurance Companies

  • A.M. Best's Liquidity Model for U.S. Life Insurers

  • Understanding BCAR for Life/Health Insurers

  • Understanding BCAR for Canadian Property/Casualty Insurers

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