TEXT - Fitch affirms Old Republic International Corp

Fri Feb 8, 2013 12:05pm EST

Feb 8 - Fitch Ratings has affirmed Old Republic International Corporation's
 (ORI) holding company ratings, including the senior debt rating at
'BB+'. Fitch has also affirmed the Insurer Financial Strength (IFS) ratings of
ORI's insurance subsidiaries at 'A-'. The Rating Outlook is Stable. A full list
of ratings follows at the end of this release. 

KEY RATING DRIVERS

The affirmation of ORI's ratings reflect its property/casualty and title 
insurance subsidiaries' solid capitalization, sound underwriting results, and 
conservative reserving practices. This is offset by continued operating losses 
in Republic Financial Indemnity Group, Inc. (RFIG), the runoff mortgage 
insurance and consumer credit indemnity (CCI) businesses. 

ORI reported an operating loss for the fifth straight year in 2012, largely due 
to continued losses related to its mortgage insurance (MI) business. ORI 
reported a pretax operating loss of $176 million in 2012 compared with a loss of
$352 million in 2011. Republic Financial Indemnity Group, Inc. (RFIG), the 
runoff mortgage insurance and consumer credit indemnity (CCI) businesses, 
continues to weigh down profits. The segment reported a smaller loss during 
2012, but results will likely remain negative through at least 2014.

The company's property/casualty (P/C) operations remain strongly capitalized 
with a NAIC risk-based capital ratio of approximately 391% of company action 
level as of Sept. 30, 2012, and net premiums written-to-surplus of about 0.8x. 
Additionally, ORI's score on Fitch's Prism capital model was 'very strong' at 
year-end 2011 and is expected to remain relatively constant at year-end 2012.

ORI's title companies remain firmly capitalized despite modest deterioration due
to rapid growth over the past several years, as profits have been largely 
retained within the businesses. Operating leverage was approximately 4.8x as of 
Sept. 30, 2012 compared with 5.2x and 3.6x at years-end 2011 and 2008, 
respectively. Fitch's 2012 risk-adjusted capital (RAC) ratio for ORI's title 
operations is expected to remain within Fitch's guidelines though modestly lower
than the 167% at year-end 2011 (please refer to Fitch's 'Title Insurance (U.S.) 
-- Sector Credit Factors' for model changes). 

ORI's underlying P/C business remained profitable in 2012 with a combined ratio 
of 98.7% compared with 94.4% in 2011, excluding CCI in both periods. The 
deterioration is largely due to weaker results in its workers' compensation and 
commercial auto lines. 

The workers' compensation industry is adversely affected by weak unemployment, 
which typically leads to longer periods of disability for injured workers, low 
interest rates and medical inflation. ORI has increased rates with further 
hardening expected in 2013; however, it may be insufficient to offset 
inflationary trends in loss costs. Higher loss cost trends in commercial auto 
(trucking) and general liability also contributed to weaker underwriting results
in 2012.

ORI's title insurance operations reported improved underwriting results again in
2012 with a 96.8% combined ratio compared with 99% in 2011. The segment's growth
over the past several years has led to significant market share gains, but the 
pricing adequacy of this business remains uncertain, in Fitch's view.

ORI's ratings also reflect solid debt servicing capability from dividend 
capacity in its p/c and title insurance subsidiaries. Additionally, ORI has 
approximately $234 million of cash in highly liquid securities held at the 
holding company and non-regulated subsidiaries. ORI's year-end 2012 financial 
leverage ratio declined to approximately 15% (excluding unrealized investment 
gains) from 21% in 2011 following the repayment of debt in May 2012.

ORI's title subsidiaries are considered 'very important', and Fitch believes the
parent remains committed to these operations. Given that group ratings and the 
title subsidiaries' stand-alone ratings have been equalized, parental support is
irrelevant at current levels. However, parental support remains critical to the 
ratings in a scenario where uplift is applied.

Fitch's ratings of ORI at the holding company level remain notched down by one 
additional notch from the operating company IFS ratings compared to standard 
notching to reflect ongoing, albeit reduced, uncertainties related to the runoff
of RMIC and the risk this poses for ORI's debt. 

RATING SENSITIVITIES

Factors that could lead to an upgrade, including a movement to standard 
notching, include a return to consistent operating earnings and positive 
internal capital formation following five consecutive years of operating losses,
greater certainty of a successful runoff of RMIC with reduced adverse impact 
from related operating losses. Other factors that could lead to an upgrade 
include a favorable resolution to the CCI litigation/product and continued solid
capitalization. 

Factors that could lead to a downgrade include: 

--Heightened concerns related to CCI or the RMIC runoff compared to 
expectations,including an adverse amendment to the Final Order by the NCDOI; 

--A weakening of debt servicing capabilities, whereby holding company liquidity 
and statutory dividend capacity cover interest expense by less than 7x, which 
would represent a 75% drop from approximately 28x at year-end 2012;

--Significant deterioration in P/C capitalization, whereby ORI's score on 
Fitch's Prism capital model deteriorates to 'adequate' or operating leverage 
increases above 1.4x;

--Deterioration in P/C underwriting results with combined ratios above 105%;

--Increase in financial leverage to levels near 30%.

Fitch affirmed the following ratings with a Stable Outlook: 

Old Republic International Corp. 
--IDR at 'BBB-'; 
--$550 million 3.75% senior notes due March 15, 2018 at 'BB+'.

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 Co. 
Old Republic Surety Co. 
Manufacturers Alliance Insurance Co.
Pennsylvania Manufacturers' Association Insurance Co.
Pennsylvania Manufacturers Indemnity Co.
American Guaranty Title Insurance Co. 
Mississippi Valley Title Insurance Co. 
Old Republic National Title Insurance Co. 
--IFS at 'A-'. 

Contact:

Primary Analyst

Dafina M. Dunmore, CFA

Director

+1-312-368-3136

Fitch Ratings, Inc.

70 W. Madison Street

Chicago, IL 60602

Secondary Analyst

Doug M. Pawlowski, CFA 

Senior Director

+1-312-368-2054

Committee Chairperson

Keith M. Buckley, CFA

Managing Director

+1-312-368-3211

Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549, Email: 
brian.bertsch@fitchratings.com.

Additional information is available at 'www.fitchratings.com'. The ratings above
were unsolicited and have been provided by Fitch as a service to investors. The 
company did not participate in the rating process except through public 
information. 

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CONDUCT' SECTION OF THIS SITE. NORMAL RATINGS Old Republic International Corp
Fitch Affirms Old Republic International Corp.'s Ratings; Outlook Stable 
Old Republic International Corp Old Rep ORI.N USD 3182248568 0.95529 INDEX
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