Best Sees No Change in Old Republic’s Ratings from PMA Acquisition

June 14, 2010

A.M. Best Co. has commented that the ratings of Chicago-based Old Republic International Corporation’s P/C, title and life operating subsidiaries are unchanged following its proposed acquisition of the outstanding common shares of Pennsylvania-based PMA Capital [See IJ web site –].

Best noted that the “purchase, valued at approximately $365 million, is to be a stock-for-stock transaction and is not contingent upon raising public or private capital. As part of the transaction, Old Republic will assume PMA’s debt, though this is projected to result in only a modest increase in Old Republic’s financial leverage. Old Republic’s debt-to-total capital is expected to rise to just 10.0 percent from 8.0 percent, still a modest level of financial leverage, upon the close of the acquisition.” Best added that it “expects risk-adjusted capital of Old Republic’s operating companies to remain supportive of their current ratings following the acquisition.”

The transaction is expected to close in third quarter 2010, subject to approval by PMA’s shareholders, regulatory approvals and other customary closing conditions.

“PMA, whose operating subsidiaries provide insurance and fee-based services, primarily writes workers’ compensation and other commercial property and casualty lines of insurance,” Best continued. “Old Republic’s purchase of PMA will significantly increase Old Republic’s mix of workers’ compensation business within its property/casualty General Insurance segment to approximately one-third, while providing greater geographic diversification in the East.

“PMA will be operated as a separate Old Republic subsidiary within the 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.

“Efficiencies are expected to be realized, including PMA no longer having the responsibilities of a public company.”

Source: A.M. Best

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