OLDWICK, N.J.–(BUSINESS WIRE)–
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),
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). the outlook for all the above ratings is negative.
“A.M. Best’s Liquidity Model for U.S. Life Insurers”
Concurrently, A.M. Best has affirmed the FSR of A (Excellent) and ICRs of “a+” of
Old Republic General Insurance Corporation (ORGENCO) (Chicago, IL),
Old Republic Title Insurance Group (ORTIG) (Minneapolis, MN) and its members,
Old Republic Surety Company (ORSC) (Brookfield, WI) and
Old Republic Insurance Company of Canada (Hamilton, Ontario). the outlook for the FSRs is stable, while the outlook for the ICRs is negative.
A.M. Best also has upgraded the FSR to A (Excellent) from A- (Excellent) and the ICRs to “a” from “a-” of
The PMA Insurance Group (PMA) and its property/casualty members. Additionally, A.M. Best has upgraded the ICR to “bbb” from “bbb-” and debt ratings of
PMA Companies, inc.
(Blue Bell, PA). both the group and company’s ratings have been removed
from under review with positive implications and assigned a stable
outlook.
A.M. Best also has downgraded the FSR to B++ (Good) from A- (Excellent) and the ICR to “bbb” from “a-” of
Old Republic Security Assurance Company (ORSAC) (Phoenix, AZ). the outlook for both ratings has been revised to stable from negative.
At the same time, A.M. Best has affirmed the FSR of A (Excellent) and ICR of “a” of
Old Republic Union Insurance Company (Old Republic Union) and the FSR of A- (Excellent) and ICR of “a-” of
Old Republic Life Insurance Company (both domiciled in Chicago, IL).
The outlook for these ratings is stable
. All companies above are subsidiaries of
Old Republic International Corporation
(Old Republic Corp.) (headquartered in Chicago, IL) [NYSE:ORI]. (See
link below for a detailed listing of the companies and ratings.)
These ratings reflect A.M. Best’s review of the amount of
deterioration in the consolidated financial condition and financial
flexibility of old Republic Corp. since 2007. While old Republic Corp.’s
consolidated operating losses for the first nine months of 2010 appear
to have moderated to some degree in comparison with losses reported in
2008 and 2009, the increased losses in the mortgage guaranty segment in
the third quarter of 2010 and continued deterioration in the
profitability of the general insurance property/casualty segment are of
concern. old Republic Corp.’s mortgage guaranty, title and general
insurance segments all have exposure to the current weak employment and
housing and related mortgage markets, the general insurance segment
largely as a result of its consumer credit indemnity (CCI) business. in
addition, the underwriting and overall profitability of the general
insurance segment is being pressured by the increasingly competitive
property/casualty market in general over the past several years.
Improving credit markets and segments of the U.S. economy,
recoveries in equity and fixed income markets and old Republic Corp.’s
still modest level of financial leverage (proforma debt-to-total capital
of approximately 10% at September 30, 2010, including PMA Companies,
inc.’s debt) have contributed to A.M. Best’s somewhat sanguine view of
old Republic Corp.’s financial condition and financial flexibility,
while also supporting A.M. Best’s affirmation of most of old Republic
Corp.’s subsidiaries ratings. nevertheless, old Republic Corp.’s
exposure to the volatility and uncertainties of the current weak
employment and housing and related mortgage markets remains substantial.
should the company’s consolidated operating losses trend higher from
current levels or exceed expectations, A.M. Best would need to reassess
its current view of old Republic Corp., and selected subsidiary rating
downgrades would appear probable.
The affirmation of the ratings of old Republic Insurance, Bituminous
and Great West recognizes their strong individual capitalizations,
historically solid profitability, well-recognized franchises, expertise
in their respective individual business specialties, as well as their
conservative and experienced management teams. ORGENCO’s ratings
acknowledge its strong operating performance in recent years, while
recognizing its strategic role among old Republic Corp.’s
property/casualty insurers. ORGENCO’s principal role is to reinsure the
business of affiliates, act as the direct writer of a material book of
construction business for an affiliated Bermuda subsidiary, and to a
lesser degree, act as a primary insurer to accommodate marketing and
licensing limitations of affiliates. A.M. Best’s expectations are that
the management of old Republic Corp. will look to sources other than
these insurance operations for additional capital and liquidity, when
needed. the negative outlook on the ratings primarily reflects the
uncertainty associated with the continued consolidated operating losses
of old Republic Corp., and in the case of old Republic Insurance and
ORGENCO, also their highly unprofitable books of CCI business.
The affirmation of ORTIG’s ratings reflects the group’s conservative
reserving practices and solid risk-adjusted capitalization, which
supports its current ratings. the group has seen a modest rebound in
operating performance in 2010. nevertheless, ORTIG faces challenges in
sustaining near-term profitability by controlling expenses and managing
earnings and revenue volatility resulting from continued weakness in the
housing market, as the demand for title insurance products is largely
derived from residential real estate transactions. However, the group,
which has a nationally diversified title premium base, has rapidly
increased its book of business in 2009 and 2010, nearly doubling its
national market share from approximately 6% to 11%. the future direction
of the group’s ratings and/or outlook will depend on the successful
management of this recent growth, thereby sustaining improving operating
trends, while maintaining adequate risk-adjusted capitalization.
The upgrade in the ratings of PMA and its immediate parent, PMA
Companies, inc. (formerly known as PMA Capital Corporation) acknowledges
old Republic Corp.’s acquisition of PMA Companies, inc. on October 1,
2010. PMA should benefit from being part of a financially stronger and
higher profile organization that should enhance growth opportunities and
result in operating efficiencies. PMA is being operated as a separate
old Republic subsidiary within old Republic General Insurance Group,
retaining existing senior management and its home offices in Blue Bell,
which should help mitigate risks of integration. PMA will be focused on
production, underwriting and claims management, while investments,
capital management and other non-operating areas will be managed by old
Republic, including PMA Companies, inc. no longer having the
responsibilities of a public company. PMA is receiving explicit
financial support from its affiliates,
Old Republic Insurance Company (ORINSCO)
and ORGENCO as a result of its 30% and 10% quota share agreements with
these companies, respectively, effective October 1, 2010. PMA will
significantly increase old Republic General Insurance Group’s mix of
workers’ compensation to approximately one-third, while providing
greater diversification in the eastern United States.
The downgrading of the ratings of ORSAC recognizes the continued
significant decline in underwriting and substantial operating losses of
its CCI business. this business, which accounts for all of ORSAC’s net
writings, is assumed from its affiliate, ORINSCO, which writes the
business directly. ORINSCO has not written any new CCI business since
2008 and does not plan to do so until the product is re-underwritten and
there is demand for the product in the marketplace.
For a complete listing of old Republic International Corporation
subsidiaries’ FSRs, ICRs and debt ratings, please visit please visit
ambest.com/press/120101oldrepublic.pdf.
The principal methodology used in determining these ratings is
Best’s Credit Rating Methodology — Global Life and Non-Life Insurance
Edition, which provides a comprehensive explanation of A.M. Best’s
rating process and highlights the different rating criteria employed.
Additional key criteria utilized include: “Risk Management and the
Rating Process for Insurance Companies”; “Understanding BCAR for
Property/Casualty Insurers”; “Understanding BCAR for Canadian
Property/Casualty Insurers”; “BCAR for Title Insurance Companies”; “BCAR
for Life and Health Insurers”; “The Treatment of Terrorism Risk in the
Rating Evaluation”; “Rating Members of Insurance Groups”; “A.M. Best’s
Ratings & the Treatment of Debt”; “Equity Credit for Hybrid
Securities”; “A.M. Best’s Title Insurance Rating Methodology”; “A.M.
Best’s Liquidity Model for U.S. Life Insurers”; and “Assessing County
Risk.” Methodologies can be found at ambest.com/ratings/methodology.
Founded in 1899, A.M. Best Company is the world’s oldest and most
authoritative insurance rating and information source. for more
information, visit ambest.com.
Copyright © 2013 by A.M. Best Company, inc. ALL RIGHTS RESERVED.
