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S&P Cuts Ratings on Old Republic Life Insurance Group

1 December 1999

S&P Cuts Ratings on Old Republic Life Insurance Group

    NEW YORK--Standard & Poor's--Nov. 30, 1999-- Standard & Poor's today lowered its counterparty credit and financial strength ratings on the members of the Old Republic Life Insurance Group (the Group) to single-'A' from single-'A'-plus. The outlook has been revised to negative from stable.
    The Group consists of Old Republic Life Insurance Co. (ORLIC), the major operating company, and Home Owners Life Insurance Co., which reinsures ORLIC. Collectively, it is a subsidiary of Old Republic International Corp. (ORI), whose major group of operating subsidiaries is the Old Republic General Insurance Group (ORG), a group of predominantly commercial lines property/casualty insurance companies.
    The downgrade is the result of the following:
    Major Rating Factors:

--   Capitalization: Group capital is very strong at the
     double-'A'-minus level. Until early 1999, management maintained
     capital well into the triple-'A' range, but dividended a
     substantial portion of that capital to ORI upon the sale early
     this year of Old Republic Life Insurance Co. of New York, a
     former Group member with a runoff portfolio of single premium
     deferred annuities, to American Annuity Group. Capital is still
     strong for the rating, and Standard & Poor's had anticipated that
     management would eventually eliminate much, but not all, of the
     Group's excess capital.

--   Membership in ORI: Although Standard & Poor's does not consider
     the Group to be strategically important to ORI, it does believe
     the Group benefits from its position as a member (in this case,
     longstanding) of the parent organization. Management considers
     the Group strategically important to ORI because of the
     occasional need for a life charter to support some aspect of its
     property/casualty operations and because of its relationship with
     Old Republic Minnehoma Insurance Co. (Minnehoma), a unit of ORG.
     Standard & Poor's incorporates an analytical benefit from the
     Group's implied support from ORI in its single-'A' rating.

--   Business position: The Group is very small relative to the scope
     of ORI's consolidated operations, accounting for only 3.5% of
     revenues. Individual positions in the products it offers are very
     modest.

--   Results of operations: Although GAAP results have been
     satisfactory, statutory losses, adjusted for prior years' tax
     settlements, have been incurred from 1997 through the first six
     months of 1999. Statutory earnings have been hurt by acquisition
     costs pertaining to growth in the term life insurance portfolio.

     The Group writes the following business:

--   Credit life and disability insurance sold through auto dealers to
     individuals who have borrowed to purchase cars. The insurance
     pays off the auto loan in case of the death of the insured and
     maintains payments in the event of his disability. These products
     are offered in conjunction with extended auto warranty insurance
     policies sold by Minnehoma.

--   Individual term life insurance sold through brokerage markets.

--   Specialty accidental death and dismemberment and income
     protection policies sold through financial intermediaries.

    Old Republic Life Insurance Group is a Security Circle Insurer, which means that it voluntarily underwent Standard & Poor's most comprehensive analysis and was assigned a rating in one of the top four categories for financial security.

    OUTLOOK: NEGATIVE

    The negative outlook primarily reflects the negative outlook on ORI, the business position issues outlined above, and the weak statutory earnings. Standard & Poor's expects the Group's volume of business will remain subdued, as continued growth in term life will be temporarily offset by some curtailment of writings in credit life and disability. Statutory earnings will continue to be constrained by acquisition costs and a somewhat high level of expense. The Group will continue to maintain satisfactory, if unexceptional, GAAP earnings. Capital levels will remain marginally strong for the rating, Standard & Poor's said.--CreditWire