Best Upgrades/Affirms Ratings on Old Republic and Subs

June 11, 2007

A.M. Best Co. has upgraded the financial strength rating (FSR) to “A+” (Superior) from “A” (Excellent) and the ICR to “aa-” from “a” of Chicago-based Old Republic General Insurance Corporation (ORGENCO). Best has also affirmed the FSR of “A” (Excellent) and upgraded the ICR to “a+” from “a” of Old Republic Surety Company (ORSC) of Brookfield, Wis., and upgraded the FSR to “A” (Excellent) from “A-” (Excellent) and assigned an ICR of “a+” to Toronto-based Old Republic Insurance Company of Canada (ORINSCO Canada).

Concurrently, Best affirmed the FSRs and ICRs of the Old Republic Group, which is also based in Chicago, and its members, Bituminous Insurance Companies of Rock Island, Ill., Great West Casualty Company of South Sioux City, Nebr., Old Republic Union Insurance Company of Chicago, and Phoenix Ariz.-based Old Republic Security Assurance Company. All of the companies are subsidiaries of Old Republic International Corporation. The outlook for all ratings is stable.

ORGENCO’s rating upgrade reflects “its improved capitalization and strong operating performance in recent years,” said Best. It also occupies a “strategic role among Old Republic’s property/casualty insurers,” mainly to “reinsure business of affiliates and act to a lesser degree, as a primary insurer to accommodate marketing and licensing limitations of affiliates.”

Best also noted that in January ORGENCO “began to front a material book of acquired construction business for an affiliated Bermuda subsidiary.” In support of the new business Old Republic contributed $60 million to ORGENCO’s capital in 2006.

However, Best indicated that the Company’s “concentrated source of business–primarily business assumed from affiliates–and its cyclicality,” should be considered as offsetting factors.

Concerning ORSC’s ratings upgrade, best said it recognizes the Company’s “historically consistent and excellent operating performance, solid capitalization and additional financial flexibility as a subsidiary of Old Republic.” The rating agency cited ORSC’s “consistent net underwriting profitability, double-digit operating returns, low net underwriting leverage, as well as a business mix represented by contract surety, fidelity and other miscellaneous surety bonds,” as evidence of its sound financial structure.

Best cited ORSC’s elevated expense ratio, “which largely reflects current industry practices and business concentration in surety markets,” as offsetting factors.

The ratings for ORINSCO Canada are also based on its “excellent capitalization, solid operating performance and consistently favorable reserve development.” Best also took into account the “financial support and synergies afforded to the company as an affiliate of Great West,” which provides assistance in several areas, including underwriting, claims, pricing, subrogation and salvage recovery.

“The affirmation of the ratings of Old Republic Group, Great West and Bituminous Insurance Companies reflects their strong individual capitalizations, solid profitability in recent years, well-recognized franchises, expertise in their respective business specialties, as well as conservative and qualified management teams,” the report continued. “In addition, these subsidiaries are afforded the financial flexibility of Old Republic, which has limited financial leverage.”

Offsetting factors, cited by Best, include the companies “asbestos and environmental reserve development and/or earnings variability stemming from the competitive markets in which they participate.” However, Best added, their longevity “has demonstrated their sustainability through underwriting cycles.”

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