A.M Best Co., Oldwick, N.J., has cut its financial strength ratings to "A" from "A+" and issuer credit ratings to "a-" from "aa+" of the property/casualty units of Old Republic International Corp., Chicago, in large part because of the problems the parent company is having with Republic Mortgage Insurance Co.
ORI's title insurance group saw its ICR cut to "a" from "a+" but had its FSR of "A" affirmed; the outlook for those ratings are negative.
Best does not rate RMIC. It said "expectations of further substantial mortgage guaranty losses in the foreseeable future and increased financial leverage in 2011 at ORI have somewhat weakened the financial strength of ORI."
ORI said it is likely RMIC would be placed into run-off if it fails to come to agreements with its primary regulator in North Carolina, Fannie Mae and Freddie Mac. The two secondary market purchasers have suspended RMIC as an MI provider.
As for Old Republic Title Insurance Group, Best said it affirmed the FSR due to its solid liquidity and strong balance sheet. But the ICR downgrade reflects increasing underwriting leverage from significant premium growth outpacing increases in surplus. According to American Land Title Association data, ORTIG ended the first quarter as the third largest title insurer, moving ahead of Stewart.
The negative outlook is because of the potential challenges in managing growth and sustaining profits in the current uncertain economic environment and weakness in housing.
