OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has affirmed the Financial Strength Rating (FSR) of A (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “a” of the five title insurance subsidiaries of First American Financial Corporation (FAF) (Delaware) [NYSE: FAF]. These five title insurance subsidiaries are collectively referred to as First American Title Insurance Group: First American Title Insurance Company (Omaha, NE), First American Title Insurance Company of Australia Pty Limited (Australia), First American Title Insurance Company of Louisiana (New Orleans, LA), First Title Insurance plc (United Kingdom) and Ohio Bar Title Insurance Company (Columbus, OH). Concurrently, A.M. Best has affirmed the Long-Term ICR of “bbb” of FAF. The outlook of these Credit Ratings (ratings) is stable.
Additionally, A.M. Best has affirmed the FSR of A (Excellent) and the Long-Term ICR of “a” of First American Property & Casualty Insurance Company and First American Specialty Insurance Company, collectively referred to as First American PC Companies. The outlook of these ratings is stable. All companies are domiciled in Santa Ana, CA, unless otherwise specified.
The ratings of First American Title Insurance Group reflect its relatively strong risk-adjusted capitalization, driven by improved operating results as well as lower underwriting and affiliated investment leverage. The group also benefits from its significant market presence in the title insurance industry. The group maintains a strong franchise value and benefits from the financial flexibility and operational support from FAF, which maintains relatively modest financial leverage and solid interest coverage. First American Title Insurance Group’s underwriting leverage has significantly improved from the prior five-year period due to its overall surplus growth, premium growth and improved operating results and cost reduction initiatives.
Although real estate market conditions have shown improvement recently, the group will be challenged to manage and sustain operating performance through the current macro-economic environment, which could hinder the rebound in real estate market activity, due to increased mortgage interest rates and changes in the legal and regulatory environment.
Negative rating actions could occur if a lack of underwriting discipline results in a trend of deteriorating underwriting operating performance to a level below peers. In addition, an erosion of surplus to an extent that it causes a significant rise in the group’s underwriting leverage could result in a negative rating action.
The ratings of First American PC Companies reflect the group’s relatively strong risk-adjusted capitalization. The group has also seen somewhat stable operating results over the most recent five-year period, derived from its strict underwriting discipline and loss control guidelines, which have resulted in measurable underwriting profitability over the long term. The Long-Term ICR also recognizes First American PC Companies’ use of multiple distribution channels to market its products. Besides brokers and independent agents, First American PC Companies is able to leverage FAF’s advanced computer systems and title distribution networks to facilitate direct escrow sales of homeowners’ insurance.
Partially offsetting these positive rating factors are First American PC Companies’ geographic concentration and exposure to catastrophe losses, as well as an increase in underlying claim severity and frequency on their portfolio.
Negative rating actions could occur if a lack of underwriting discipline results in a trend of deteriorating underwriting operating performance to a level below peers. In addition, an erosion of surplus to an extent that it causes a significant rise in the group’s underwriting leverage could result in rating action.
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