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Fitch puts Old Republic on negative ratings watch

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Fitch Ratings placed Old Republic International Corp. (ORI) and its mortgage insurance subsidiary on negative ratings watch after the North Carolina Department of Insurance began supervising the firm's Republic Mortgage Insurance Co. Fitch said the rating "reflects uncertainty as to ORI's ability to continue to avoid a covenant breach under its debt obligations in light of ongoing challenges at its troubled mortgage insurance subsidiary." In a filing with the Securities and Exchange Commission Wednesday, Old Republic said its flagship mortgage guaranty insurance unit has been operating on a waiver of minimum capital requirements in North Carolina since late 2009. That waiver expired in Aug. 31 and the business went into run-off mode. Under the order of supervision, no business has been undertaken and RMIC "may not pay more than 50% of any claims allowed under any policy of insurance it has issued," according to the filing. The remaining 50% will be deferred and credited to a temporary account on the books of RMIC. Fitch analysts noted Old Republic's claim in the filing that the order of supervision will not trigger a breach of debt obligations. "Nonetheless, the agency believes the uncertainty surrounding how the RMIC runoff will play out, and the significant of the consequences should the covenant ultimately be breached, are potentially inconsistent with investment grade debt and issuer default ratings at ORI," analysts said. Fitch rates Old Republic at BBB, and some 8% senior notes in May and 3.75% notes due in March 2018 are rated BBB-. Write to Kerri Panchuk.

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