Sep. 10, 2009 (Business Wire) -- Fitch Ratings has affirmed Old Republic International Corporation (ORI) and its subsidiaries as follows:
ORI
--Issuer Default Rating (IDR) at 'BBB+';
--$316 million of convertible unsecured senior notes at 'BBB';
--Insurer Financial Strength (IFS) rating of the property/casualty and title insurance groups at 'A+';
Old Republic Capital Corp.
--Commercial paper at 'F2'.
The Rating Outlook is Negative.
See complete list of rating actions below.
The affirmation of ORI's ratings reflect modest financial leverage, a conservatively structured investment portfolio and a core property/casualty business that is profitable after adjusting for the consumer credit indemnity (CCI) product. The current economic environment and specifically the troubled real estate market has adversely affected all three business segments at ORI, namely mortgage guaranty, title insurance and property/casualty through its CCI product. Consequently, earnings have been challenged as the current downturn has damaged the historic diversification benefits enjoyed by ORI.
Following ORI's $316 million issuance of convertible notes in April 2009, financial leverage increased to 9%, which is very low relative to peer companies. ORI does have financial flexibility provided by a $150 million commercial paper line with only $25 million currently outstanding, as well as a shelf registration that was used to issue convertible notes. Fitch expects ORI to maintain its financial leverage near current levels.
Fitch considers ORI's investment portfolio to be less risky relative to peers given its minimal exposure to: real estate, mortgage-backed securities, collateralized debt obligations, derivatives, high-yield bonds or private equity investments. As of June 30, 2009, ORI's investment portfolio carried a modest net unrealized gain position of approximately 2.5%. In addition, Fitch's stress analysis of ORI's investment portfolio calculated very modest investment losses in the range of 3%-8% of surplus across 'core' and 'severe' scenarios, which was lower than peer companies.
The profitability of the core property/casualty business remains solid with the exception of the CCI product. Specifically, through six months of 2009 the combined ratio was 95.3% excluding CCI relative to 91.9% for the same period in 2008 also excluding CCI. The earnings of ORI's property/casualty business have been a stabilizing influence of its ratings in light of struggles in mortgage guaranty, title insurance and CCI.
The Negative Rating Outlook on ORI and its property/casualty units reflects Fitch's concerns regarding ORI's CCI portfolio written in its property/casualty unit, which provides credit protection against pools of prime second-lien mortgages. The company grew this product segment aggressively in 2006-2007, at the peak of the U.S.
