Best Is Bearish on Title

A.M. Best Co. here has revised its outlook on Old Republic Title Insurance Co. from stable to negative because of uncertainties related to the parent company's mortgage guaranty business as a result of the downturn in the housing and mortgage finance markets.

Otherwise, Best affirmed its financial strength and issuer credit ratings of ORTIC.

In its statement, Best noted, "The positive rating factors are derived from the group's moderate underwriting leverage, conservative reserving practices and commitment to technology advancement. These positive rating factors are partially offset by the ongoing down cycle in the real estate market. The group faces challenges in controlling expenses and managing earnings and revenue volatility due to the current weakness in the housing market as the demand for title insurance products is largely derived from transactions in residential real estate."

On the other hand, Best noted ORTIC and its sister title companies are nationally diversified, limiting exposure to volatility to fluctuations in regional real estate markets. "Moreover, approximately two-thirds of the group's premium is generated through independent agents. This enables the group to potentially better manage down cycles as fixed costs are generally lower for that distribution channel," Best said.

In a separate release Best revised the outlook on a number of other Old Republic International Corp. subsidiaries to negative as well because of the problems in the housing market and the company's exposure to the mortgage guaranty business. These subsidiaries are Old Republic Insurance, Bituminous Insurance Cos., Great West Casualty Co. and Old Republic General Insurance Co.

These problems, Best said, "in turn, could potentially affect property/casualty companies within Old Republic General Insurance Group and has already had some adverse impact on Old Republic's title agency operations. Old Republic and its subsidiaries also maintain exposure to the housing and related mortgage finance markets by virtue of their approximate aggregate 10% common stock ownership of MGIC Investment Corp. and 15% common stock ownership of The PMI Group Inc.

"A.M. Best believes these investments are a departure from Old Republic's usual conservative stewardship. In the near term, the material decline in the value of these stocks has caused a moderate decline in subsidiary capital. Furthermore, should additional capital be needed in any of the subsidiaries, Old Republic will likely access the capital markets. Old Republic currently operates with a low debt-to-total capital ratio of approximately 1.5% and has a $1 billion shelf offering available. However, any capital raising activity could reduce financial flexibility in the near term," the rating agency said. (c) 2008 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com/ http://www.sourcemedia.com/