Fitch Affirms Old Republic International and Subsidiaries Ratings

July 25, 2007

CHICAGO--(BUSINESS WIRE)--Fitch Ratings has affirmed Old Republic International Corporation's (ORI) Issuer Default Rating (IDR) at 'AA-' and its commercial paper rating at 'F1+'. The 'AA' Insurer Financial Strength (IFS) ratings of the property/casualty operating subsidiaries were also affirmed. Fitch assigned the 'AA' group IFS ratings to Old Republic General Insurance Corporation and Old Republic Surety Co. as core operations of Old Republic International's property casualty business. The Rating Outlook is Stable.

Currently, ORI's IDR is a single notch higher than standard notching due to modest financial leverage. ORI has $1 billion shelf registration, however, there are currently no plans to add financial leverage to the balance sheet. Fitch expects that if financial leverage were increased, debt-to-total capital ratios would remain below 15% in order to preserve the current notching between Issuer Default and Insurer Financial Strength ratings.

ORI's ratings continue to benefit from consistently high levels of profitability and a conservative management philosophy. The conservative management philosophy is reflected in an investment portfolio dominated by high quality bonds, a redundant reserve position, strong capitalization of underwriting subsidiaries and modest financial leverage at the holding company level. Old Republic remains challenged by is moderate market share and size relative to similarly rated peers.

Commercial lines property and casualty, mortgage insurance and title insurance are ORI's three primary lines of business and the diversification benefit provided by these lines can be seen in the company's period-to-period stability in earnings. ORI's property and casualty insurance business is the largest contributor to revenue and earnings and results are expected to remain favorable in the near term. Profitability from the mortgage insurance and title insurance operations are expected to decline given deterioration in the real estate and mortgage markets.

ORI's property and casualty business (ORPC) consists of a diverse group of commercial insurers with a focus providing specialty liability coverage to small, medium, and large businesses involved in transportation (trucking and general aviation), construction, forest products, and energy as well as public entities such as municipalities. ORPC's operations are characterized by disciplined underwriting that is focused on profitable organic growth of existing businesses as opposed to acquisition-oriented growth or rapid expansion into new products. The group surpassed 2005's favorable results with a strong 90.3% combined ratio in 2006, and accounted for nearly 60% of ORI's pretax earnings.

The mortgage insurance segment led by Republic Mortgage Insurance Corp. (RMIC) accounted for one-third of ORI's pre-tax operating income during 2006, down from its peak of more than 50% in 2001. The 6% decline in earnings at RMIC reflects increased paid claims and higher levels of claim frequency and severity.

ORI's title insurance business (ORT) is the smallest among the five national title insurers with a 6% share of the market measured by premium volume. The market share has been stable over the recent past, but profitability suffered in 2006. ORT accounted for roughly 5% of ORI's pretax income in 2006, down from a high of roughly 20% in 2003. ORT's cost structure, which benefits from a higher percentage of agency business, is more variable and theoretically should help preserve profits during down markets.

Fitch affirms the following ratings with a Stable Outlook:

  • Old Republic International Corp.
    • Issuer Default Rating (IDR) at 'AA-';
    • Commercial Paper at 'F1+'.
  • Old Republic Property Casualty Group
    • Issuer Financial Strength 'AA'/Stable Outlook.

In addition, Fitch withdraws the following rating:

  • Old Republic International Corp.
    • Senior Debt 'A+'.

Fitch assigns the following ratings with a Stable Outlook:

  • Old Republic General Insurance Corp.
    • Insurer Financial Strength (IFS) 'AA'.
  • Old Republic Surety Co.
    • Insurer Financial Strength 'AA'.

No action was taken on the following ratings:

  • Republic Mortgage Insurance Corp.
    • Insurer Financial Strength 'AA'.
  • Old Republic Title Group
    • Insurer Financial Strength 'AA-'.

The following are members of the Old Republic Property Casualty Group:

  • Bituminous Casualty Corp.
  • Bituminous Fire & Marine Insurance Co.
  • Great West Casualty Co.
  • Old Republic Insurance Co.
  • Old Republic Lloyds of Texas
  • Old Republic General Insurance Corp.
  • Old Republic Surety Co.

Source: Fitch Ratings

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