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Rating Action:

Moody's lowers Old Republic's ratings (senior debt to (P)A3)

19 Feb 2009

$200 million in commercial paper downgraded. Insurance financial strength ratings of General Insurance Group lead subsidiaries lowered to Aa3, Title Group lead subsidiaries affirmed at A1.

New York, February 19, 2009 -- Moody's Investors Service announced today that it has lowered the credit ratings of Old Republic International (NYSE:ORI) and its key property & casualty subsidiaries because of significant deterioration in the credit profile of the group's mortgage insurance subsidiary, Republic Mortgage Insurance Company (RMIC) as well as large investment losses at the property & casualty operations.

ORI's provisional senior unsecured debt was downgraded to (P)A3 from (P)A2 and its short-term rating for commercial paper was downgraded to Prime-2 from Prime-1. The insurance financial strength (IFS) ratings of Old Republic General's lead property and casualty insurance subsidiaries were lowered to Aa3 from Aa2. In the same action, Moody's affirmed the A1 IFS ratings of ORI's lead title insurance companies. The outlook for these companies is stable.

This rating action follows last week's downgrade of the RMIC's IFS rating to Baa2 from A1, with a developing outlook. Please refer to the RMIC press release dated February 13, 2009.

Old Republic General Insurance Group

According to Moody's, the downgrade of the property & casualty subsidiaries primarily reflects reduced financial flexibility and capital adequacy at those operations given weakness at the group's affiliated mortgage insurer, and significant investment losses.

According Paul Bauer, Vice President and Senior Analyst, "The potential need of parent ORI to provide further capital to RMIC could in turn place additional pressure on the financial flexibility of Old Republic's General Insurance Group." While Moody's does not expect ORI to dividend large amounts of capital from its General Insurance Group to capitalize RMIC, the General Insurance Group will need to provide dividends to cover most of the parent company's cash obligations over the near term given earnings weakness at its mortgage and title subsidiaries.

The rating agency added that core underwriting profitability remains very good, albeit lower than in prior years, while net income was dramatically reduced in 2008 as a result of realized investment losses primarily on its equity portfolio. The General Insurance Group's credit profile is supported by its strong regional commercial and specialty lines franchise, its long-term earnings track record, high quality fixed income portfolio, and very good risk-adjusted capitalization.

At its current Aa3 IFS rating level, Moody's expects Old Republic General Insurance Group to maintain its historically high level of operating conservatism, with gross underwriting leverage under 4.5x, ROE's in the mid-single digits or better, and minimal if any adverse reserve development (less than 4% of reserves).

Old Republic Title Insurance Group

The rating agency said that its affirmation of the A1 IFS ratings of Old Republic Title's lead subsidiaries reflects its market position as one of the top four title insurers in the U.S., good capitalization, strong reserve adequacy, and high quality investment portfolio. These strengths are tempered by an expectation of weak profitability over the medium term and by the group's relatively modest scale in relation to several of its title insurance peers.

"Despite near-to-medium term pressure on revenues and earnings, the ratings are appropriately positioned at their current level since we have already incorporated significant volatility due to the fundamental cyclicality of the title business given its dependence on real estate transactions and mortgage refinance volume," said Mr. Bauer. Moody's expects the Old Republic Title Group to maintain its current market share and its currently strong subsidiary capitalization, while limiting operating losses during the current downturn (i.e. to less than $50 million annually).

Old Republic International

The downgrade of Old Republic's holding company debt ratings was driven primarily by the substantial credit deterioration at its mortgage insurer, earnings weakness at its title operations, and a reduction in the group's financial flexibility. Over the medium term, Moody's expects that the property & casualty operation will need to support holding company obligations, thereby reducing its financial flexibility and capitalization. The holding company maintains some cash and short-term investments, and has significant dividend capacity from its operating units ($415 million for 2008, though this amount will be lower in 2009), providing liquidity for the currently $200 million outstanding in commercial paper and the expected shareholder dividends of about $160 million in 2009. Moody's noted positively that ORI's capital structure maintains very modest levels of debt, with no long-term debt outstanding. While Old Republic also has alternative liquidity (in terms of committed bank lines (with no MAC language), the group's profitability is expected to remain under continued pressure, particularly at the mortgage and title operating units.

Moody's expects that the group's debt to capital will remain below 25%. Further downgrades of the IFS ratings of its operating subsidiaries could result in a further downgrade of the parent company ratings.

The following ratings were downgraded with a stable outlook:

Old Republic International Corporation -- provisional senior unsecured debt to (P)A3 from (P)A2; provisional subordinated debt to (P)Baa1 from (P)A3; and, provisional preferred stock to (P)Baa2 from (P)Baa1.

Old Republic Capital Corporation -- commercial paper to P-2 from P-1;

Bituminous Casualty Corp. -- insurance financial strength to Aa3 from Aa2;

Bituminous Fire & Marine Insurance Co. -- insurance financial strength to Aa3 from Aa2;

Great West Casualty Company -- insurance financial strength to Aa3 from Aa2;

Old Republic Insurance Co. -- insurance financial strength to Aa3 from Aa2.

The following ratings were affirmed with a stable outlook:

Old Republic National Title Insurance Company -- insurance financial strength at A1;

Mississippi Valley Title Insurance Company -- insurance financial strength at A1;

Old Republic General Title Insurance Corporation -- insurance financial strength at A1.

Old Republic International Corporation, headquartered in Chicago, Illinois, is a multi-line insurance holding company whose subsidiaries are engaged primarily in property and casualty insurance, mortgage guaranty, and title insurance. For 2008, Old Republic International Corporation reported revenue of $3.2 billion and a net loss of $558 million. Shareholders' equity as of December 31, 2008 was $3.7 billion.

The last rating action involving ORI occurred on June 27, 2008, when Moody's downgraded the senior debt rating of the company to (P)A2.

The principal methodologies used in rating Old Republic International, its principal property and casualty subsidiaries and its principal title insurance subsidiaries are Moody's Global Rating Methodology for Property and Casualty Insurers and Moody's Rating Methodology for U.S. Title Insurance Companies. Both methodologies can be found at www.moodys.com in the Credit Policy & Methodologies directory, in the Ratings Methodologies subdirectory. Other methodologies and factors that may have been considered in the process of rating Old Republic International can also be found in the Credit Policy & Methodologies directory.

Moody's insurance financial strength ratings are opinions of the ability of insurance companies to pay punctually senior policyholder claims and obligations. For more information, please visit www.moodys.com/insurance.

New York
Paul Bauer
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Robert Riegel
Managing Director
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's lowers Old Republic's ratings (senior debt to (P)A3)
No Related Data.
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