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First American Financial Reports Third Quarter 2013 Results

Information and other revenues were $159.3 million this quarter, up less than 1 percent compared with the same quarter of last year. Higher demand for the company’s default and commercial title information products was largely offset by lower demand for title plant information due to the decline in refinance title orders during the quarter.

Investment income was $22.2 million in the third quarter, an increase of $2.7 million from the third quarter of 2012. This increase was primarily due to higher interest and dividends from the investment portfolio. Net realized investment losses in the current quarter were $5.5 million compared with realized investment gains of $19.8 million in the prior year.

Personnel costs were $350.9 million in the third quarter, an increase of $33.7 million, or 11 percent, compared with the third quarter of 2012. This increase was primarily due to higher staffing levels as compared with last year and increased incentive compensation driven by higher revenues.

In response to lower refinance activity during the third quarter, headcount was reduced by 715 employees, including temporary staffing. As a result, the company recorded severance costs of $7.8 million in the third quarter.

Other operating expenses were $204.7 million in the third quarter, up $7.7 million, or 4 percent, compared with the third quarter of 2012. This increase was primarily due to higher production-related expenses.

The provision for policy losses and other claims was $60.5 million in the third quarter, or 5.8 percent of title premiums and escrow fees, compared with $59.7 million, or 6.6 percent of title premiums and escrow fees, in the same quarter of the prior year. The current quarter rate of 5.8 percent reflects the ultimate loss rate for the 2013 policy year with no reserve adjustment for prior policy years.

Pretax income for the Title Insurance and Services segment was $125.0 million in the third quarter, compared with $141.9 million in the third quarter of 2012. Pretax margin was 10.3 percent in the current quarter, which included a reduction of 40 basis points from net realized investment losses, compared with 12.9 percent last year, which included an increase of 160 basis points from net realized investment gains.

               

Specialty Insurance

($ in millions)

 

For the Three Months Ended

September 30,

2013                 2012
Total revenues $ 86.1                 $ 81.4
 
Income before taxes $ 4.0 $ 8.1
Pretax margin 4.7 % 10.0 %
 

Total revenues for the Specialty Insurance segment were $86.1 million in the third quarter of 2013, an increase of 6 percent compared with the third quarter of 2012. The increase in revenues was driven by higher premiums earned in both the home warranty and property and casualty business lines, partially offset by $1.5 million in net realized investment losses this quarter compared with $2.1 million in net realized investment gains last year. The overall loss rate in the Specialty Insurance segment was 63.8 percent in the current quarter compared with a 60.6 percent loss rate in the prior year. Both business lines experienced higher losses in the quarter, resulting in a pretax margin of 4.7 percent, down from 10.0 percent in the third quarter of 2012.

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