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Rating Action:

Moody's lowers Old Republic's ratings (senior debt to (P)Baa1)

22 Feb 2010

$347 million in outstanding debt. Insurance financial strength ratings of General Insurance Group lead subsidiaries lowered to A1, Title Group lead subsidiaries affirmed at A1

New York, February 22, 2010 -- Moody's Investors Service 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, insurance financial strength rating of Ba1), and because of an expectation of weaker underwriting earnings at the property & casualty operation over the medium term.

Old Republic's provisional senior debt rating was downgraded to (P)Baa1 from (P)A3 and the insurance financial strength (IFS) ratings of its key property & casualty subsidiaries were also downgraded to A1 from Aa3. In the same rating action, Moody's affirmed the A1 IFS ratings of Old Republic's lead title insurance subsidiaries. The outlook for the debt ratings, property and casualty subsidiary ratings, and title insurance ratings is stable. The outlook for mortgage insurance subsidiary is negative.

Commenting on the rating action, Moody's Senior Credit Officer Paul Bauer said that "We believe that Old Republic's credit profile, while still strong, has deteriorated somewhat in recent quarters." Mr. Bauer explained that, "The rating change for the P&C group and the parent company debt ratings was driven by three primary factors: first, the recent downgrade of sister company, RMIC, due to deterioration in its capital position; second, worse than expected performance within the P&C group's credit indemnity portfolio; and third, our expectation of continued weak commercial lines industry fundamentals."

Old Republic General Insurance Group

According to Moody's, Old Republic's property & casualty operations are supported by the group's strong franchise in specialty markets and good market presence in various niche lines of business, its historic underwriting strength and focus, and its conservative financial leverage and strong risk adjusted capitalization. Tempering these strengths however, is the deterioration in earnings over the last two years, brought about by both investment volatility and a decline in underwriting profits. Additional moderating factors include a relatively soft commercial lines market, exposure to certain lines of business with long tail liabilities, and exposure to consumer borrowing and housing markets through the company's credit indemnity line. Moody's is also concerned that capital strain may be placed on Old Republic General, either indirectly or directly, as a result of current significant stress at the group's mortgage insurer, RMIC. Given the need to maintain capital levels at the mortgage and title insurance affiliates, Old Republic General will likely be the primary supporter of parent company obligations (both interest expense and stockholder dividends) over the medium term, thereby reducing its financial flexibility.

At its current 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., as well as 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 medium term pressure at the title operation, we believe the ratings are appropriately positioned since we have already incorporated an expectation of revenue volatility in our ratings opinion," said Mr. Bauer. "This is due to the fundamental cyclicality of the title business brought about by its dependence on overall mortgage volume." Moody's expects the Old Republic Title Group to maintain its strong market position and subsidiary capitalization, while keeping expenses in line with revenue changes during the current industry trough.

Old Republic International

The primary supporter for Old Republic International's debt obligations over the medium term will be the General Insurance Group. The corporation's capital structure remains conservatively positioned with low financial leverage (Moody's adjusted debt-to-capital is estimated to be about 15%) and strong cash coverage of fixed obligations. Moody's expects that the group's debt to capital will remain below 25%.

The following ratings were downgraded with a stable outlook:

Old Republic International Corporation -- provisional senior unsecured debt to (P)Baa1 from (P)A3; provisional subordinated debt to (P)Baa2 from (P)Baa1; and, provisional preferred stock to (P)Baa3 from (P)Baa2;

Bituminous Casualty Corp. -- insurance financial strength to A1 from Aa3;

Bituminous Fire & Marine Insurance Co. -- insurance financial strength to A1 from Aa3;

Great West Casualty Company -- insurance financial strength to A1 from Aa3;

Old Republic Insurance Co. -- insurance financial strength to A1 from Aa3.

The following ratings were affirmed with a stable outlook:

Old Republic Capital Corporation -- commercial paper at P-2;

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.

The following rating has been withdrawn because the company was merged into Old Republic National Title Insurance Company:

Old Republic General Title Insurance Company -- insurance financial strength rating withdrawn 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 2009, Old Republic International Corporation reported revenue of $3.8 billion and a net loss of $99 million. Shareholders' equity as of December 31, 2009 was $3.9 billion.

The last rating action involving Old Republic occurred on February 4, 2010, when Moody's downgraded the company's mortgage insurance subsidiary Republic Mortgage Insurance Company to Ba1 from Baa2. The last rating action on ORI and its P&C and title affiliates was on February 19, 2009, when Moody's lowered the company's debt ratings (to (P)A3 from (P)A2) and the insurance financial strength (IFS) ratings of the lead P&C affiliates (to Aa3 from Aa2), and affirmed the IFS ratings of the lead title insurance companies (at A1).

The principal methodologies used in rating Old Republic International, its property and casualty subsidiaries and its title insurance subsidiaries are "Moody's Global Rating Methodology for Property and Casualty Insurers," published in July 2008 and "Moody's Rating Methodology for U.S. Title Insurance Companies," published in October 2008 which can be found at www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating Old Republic can also be found in the Rating Methodologies sub-directory on Moody's website.

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
VP - Senior Credit Officer
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)Baa1)
No Related Data.
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