A.M. Best Takes Various Rating Actions on Subsidiaries of Old Republic International Corporation

A.M. Best Co. has affirmed the financial strength rating (FSR) of A+ (Superior) and issuer credit ratings (ICR) of "aa-” of Old Republic Insurance (Chicago, IL) and Bituminous Insurance Companies (Bituminous) (Rock Island, IL) and their respective property/casualty members. In addition, A.M. Best has affirmed the FSR of A+ (Superior) and ICR of "aa-” of Great West Casualty Company (Great West) (South Sioux City, NE). A.M. Best also has downgraded the FSRs to A (Excellent) from A+ (Superior) and the ICRs to "a+ ” from "aa-” of Old Republic General Insurance Corporation (ORGENCO) (Chicago, IL) and Old Republic Title Insurance Group (ORTIG) (Minneapolis, MN) and its members. The outlook for the above ratings is negative, except for the FSRs of ORGENCO and ORTIG, which have been revised to stable from negative.

Concurrently, A.M. Best has affirmed the FSR of A- (Excellent) and ICR of "a-” of Old Republic Security Assurance Company (Phoenix, AZ). The outlook for both ratings is negative.

Additionally, A.M. Best has affirmed the FSR of A (Excellent) and ICR of "a+” of Old Republic Surety Company (Brookfield, WI). The outlook for the FSR is stable and the outlook for the ICR has been revised to negative from stable. At the same time, A.M. Best has affirmed the FSR of A (Excellent) and ICR of "a” of Old Republic Union Insurance Company (Chicago, IL). The outlook for these ratings is stable.

In addition, A.M. Best has affirmed the FSR of A (Excellent) and ICR of "a+” of Old Republic Insurance Company of Canada (Hamilton, Ontario). The outlook for the FSR is stable and the outlook for the ICR has been revised to negative from stable. A.M. Best also has affirmed the FSR of A- (Excellent) and ICR of "a-”of Old Republic Life Insurance Company (Chicago, IL). The outlook for these ratings is stable. All companies are subsidiaries of Old Republic International Corporation (Old Republic) (Chicago, IL) (NYSE:ORI). (See link below for a detailed list of the companies and ratings.)

These rating actions follow A.M. Best’s assessment of the amount of deterioration in the consolidated financial condition and financial flexibility of Old Republic following a rising trend of substantial losses over the past four quarters on an operating and net income basis. The operating losses emanate from the company’s Mortgage Guaranty operations and, to a much lesser extent, its Title Insurance business. The net losses were particularly high in second quarter 2008 reflecting substantial impairment losses of equity securities. The deterioration in Old Republic’s financial position resulted in an elimination of lift to ORTIG and a reduction of lift to ORGENCO.

The affirmation of the ratings of Old Republic Insurance, Bituminous and Great West reflects A.M. Best’s determination that the overall operating results, capital levels and well recognized specialty franchises of these businesses—while being negatively impacted by the competitive market conditions—have not declined sufficiently to warrant a downgrading of their ratings. In particular, these ratings are on a stand alone basis and should not as yet reflect drag from the decidedly negative financial performance of Old Republic’s Mortgage Guaranty business. A.M. Best’s expectations are that the management of Old Republic will look to sources other than these insurance operations for additional capital and liquidity. The negative outlook reflects the uncertainty associated with continued consolidated net losses and holding company financial flexibility.

Old Republic’s balance sheet is solid with modest financial leverage, well reserved businesses, clean investment portfolios and little desire to repurchase stock. However, A.M. Best believes that management substantially deviated from its usual conservative stewardship through its material equity investments in MGIC Investment Corporation, The PMI Group, Inc. and LandAmerica Financial Group, Inc., whose value has declined to a small fraction of Old Republic’s original investment.

The purchase of these securities utilized the excess capital of the General Insurance operations leaving considerably reduced financial flexibility. In addition, these equity purchases increased Old Republic’s exposure to the volatility and vagaries of the current housing and related mortgage finance market. While holding company cash appears sufficient to meet current obligations, Old Republic is dependent on external sources for liquidity and less than traditional avenues for capital, which A.M. Best views as less than ideal.

For a complete list of Old Republic International Corporation’s FSRs and ICRs, please visit www.ambest.com/press/120902oldrepublic.pdf.

Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.