A.M. Best Upgrades Ratings Of First American Property & Casualty Insurance Company And First American Specialty Insurance Company

A.M. Best Co. has upgraded the financial strength rating (FSR) to A (Excellent) from A- (Excellent) and issuer credit ratings (ICR) to “a” from “a-” of First American Property & Casualty Insurance Company and First American Specialty Insurance Company, collectively referred to as First American P&C Group. The outlook for all ratings has been revised to stable from positive. Both companies are domiciled in Santa Ana, CA.

The rating actions reflect First American P&C Group’s continued favorable trend of operating performance, solid risk-adjusted capitalization and reduced underwriting leverage in recent years. The group’s positive results are derived from its strict underwriting discipline and loss control guidelines, which have resulted in consistent underwriting profitability and favorable operating results over the years, despite wildfire and severe weather-related activity. The ratings also recognize First American P&C Group’s use of multiple distribution channels to market its products. Besides brokers and independent agents, First American P&C Group is able to leverage its parent, First American Financial Corporation’s [NYSE: FAF], advanced computer systems and title distribution networks to facilitate direct escrow sales of homeowners’ insurance.

These positive rating factors are somewhat offset by First American P&C Group’s concentration of business in California, which exposes its earnings and surplus to volatility from changes in that state’s regulatory and judicial climate, as well as catastrophe risks. In an effort to reduce this concentration, the group is currently geographically expanding its product offerings into other non-catastrophe correlated areas of the country, including certain parts of the Northeast.

While A.M. Best believes First American P&C Group is well positioned at its current rating level, factors that may lead to positive rating actions include a continued favorable underwriting and operating performance while enhancing its risk-adjusted capitalization. However, factors that may lead to negative rating actions include a trend of deteriorating underwriting and operating profitability or the erosion of surplus to an extent that causes a significant decline in the group’s risk-adjusted capitalization.

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