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A.M. Best Affirms Ratings Of First American Financial Corporation And Its Title Insurance Subsidiaries

A.M. Best Co. has affirmed the financial strength rating (FSR) of A- (Excellent) and issuer credit ratings (ICR) of “a-” of the six title insurance subsidiaries (collectively referred to as the First American Title Insurance Group) of First American Financial Corporation (FAF) (Santa Ana, CA) [NYSE: FAF]. Concurrently, A.M. Best has affirmed the ICR of “bbb-” of FAF. The outlook for all ratings is stable.

The ratings reflect First American Title Insurance Group’s significant market presence within the title industry as well as its significantly improved underwriting leverage measures and risk-adjusted capitalization. The group maintains a strong franchise value and benefits from the financial flexibility and operational support from FAF, which maintains relatively modest financial leverage. First American Title Group’s underwriting leverage measures significantly improved in recent years due to overall surplus growth, improved operating results, cost reduction initiatives and declining premium volume.

These positive rating factors are somewhat offset by First American Title Insurance Group’s challenging operating environment, which is reflective of ongoing profitability concerns due to a significant softening in real estate markets that has negatively impacted title premium revenues in recent years. While the group’s revenue and profitability were both negatively impacted in 2008 due to the prevailing economic environment, operating results have rebounded since 2009. This rebound was mainly due to cost reduction initiatives as First American Title

Insurance Group focused on managing the real estate down cycle. In addition, the group took significant reserve strengthening actions in recent years due to unfavorable loss development in prior policy years.

The ICR of FAF recognizes the capital strength of its insurance subsidiaries, its modest financial leverage and solid interest coverage measures.

While A.M. Best believes FAF and First American Title Insurance Group’s ratings are well positioned at their current levels, factors that may lead to positive rating actions include a trend of improved operating results while maintaining favorable underwriting leverage and risk-adjusted capitalization. However, factors that may lead to negative rating actions include a trend of further deteriorating underwriting and operating profitability or the erosion of surplus to an extent to cause a significant rise in the organization’s underwriting leverage measures.

Stock quotes in this article: FAF 

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