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Fitch Places Old Republic International Corp. on Rating Watch Positive.

CHICAGO -- Fitch Ratings has placed the ratings of Old Republic International Corporation's (ORI) and its insurance company subsidiaries on Rating Watch Positive. The ratings were previously on Rating Watch Negative, where they had been placed on Jan. 25, 2012. A complete list of ratings is provided at the end of this release.

The Rating Watch reflects ORI's recently announced plan to spin off of its wholly owned subsidiary, Republic Financial Indemnity Group, Inc. (RFIG). RFIG combines ORI's mortgage insurance and consumer credit indemnity (CCI) lines. A successful spin-off would mitigate Fitch's concern regarding a potential covenant breach under ORI's debt obligations and eliminate the cash drain related to RFIG.

Fitch anticipates that ORI's debt rating will be upgraded to investment grade assuming the spin-off occurs as specified, and that subsidiary Insurer Financial Strength (IFS) ratings will likely be upgraded by one notch.

On May 21, 2012, ORI announced that RFIG sold a 20.6% common equity interest to a group of investors in a partial leveraged buyout (LBO). In addition, ORI has announced its plans to spin off substantially all of its RFIG common stock holdings as a taxable dividend in-kind to ORI shareholders. The planned sales price and other details will be disclosed in an SEC filing in the next few days, according to management.

Christopher Nard, president of ORI, led the partial LBO. Mr. Nard will become President and CEO of a publicly traded RFIG and will consequently relinquish his role at ORI. R. Scott Rager, president of Old Republic General Insurance Company, will assume additional responsibilities as ORI's president.

Once all phases of the spin-off are completed, Fitch believes that liquidity concerns at ORI will be diminished significantly, especially the expected elimination of debt acceleration risk. On Jan. 30, 2012, Fitch downgraded ORI's debt ratings due to concerns the company could violate a collateral covenant linked to its troubled mortgage insurance subsidiary.

In addition, ORI has taken action to improve its financial leverage. On May 12, 2012, ORI redeemed its $316 million 8% convertible senior notes at maturity using holding company funds. Following the repayment, the company's debt to capital ratio is approximately 14.7%.

ORI's property/casualty and title insurance businesses continue to demonstrate strength. Property/casualty operations reported a 97.4% combined ratio for first quarter 2012 compared with 98.1% in the prior year period. CCI losses affected results by 1.7 and 4.1 percentage points, respectively. A DAC charge related to new accounting rules added 1.9 percentage points to the combined ratio in 2012.

ORI retains litigation exposure related to the CCI product as well as credit risk associated with its reinsurance agreement with an RFIG unit. Fitch's ratings assume some capacity to absorb future losses related to this product.

ORI's title insurance operations remain strongly capitalized with improved underwriting results. The segment reported a combined ratio of 98.7% for first quarter 2012 compared with 100.8% in the prior year period. While capitalization remains at an acceptable level, continued growth could lead to deterioration in risk-based capital and operating leverage.

Fitch plans to review ORI's ratings following the completion of this transaction, which is expected to take place in mid-July.

Fitch has placed the following ratings on Rating Watch Positive:

Old Republic International Corp.

--IDR 'BB';

--$550 million 3.75% senior notes due March 15, 2018 'BB-'.

Bituminous Casualty Corp.

Bituminous Fire & Marine Insurance Co.

Great West Casualty Co.

Old Republic Insurance Co.

Old Republic Lloyds of Texas

Old Republic General Insurance Co.

Old Republic Surety Co.

Manufacturers Alliance Insurance Co.

Pennsylvania Manufacturers' Association Insurance Co.

Pennsylvania Manufacturers Indemnity Co.

American Guaranty Title Insurance Co.

Mississippi Valley Title Insurance Co.

Old Republic National Title Insurance Co.

--IFS at 'A-'.

Additional information is available at 'www.fitchratings.com'. The company did not participate in the rating process except through public information. The ratings above were unsolicited and have been provided by Fitch as a service to investors.

Applicable Criteria & Related Research:

--'Insurance Rating Methodology' (Sept. 22, 2011).

Applicable Criteria and Related Research:

Insurance Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=651018

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.
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Publication:Business Wire
Geographic Code:1U3IL
Date:May 23, 2012
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