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Industry News

A.M. Best Affirms Ratings of First American Title Insurance Group and The First American Corporation

June 22, 2006

OLDWICK, N.J.--(BUSINESS WIRE) A.M. Best Co. has affirmed the financial strength rating of A (Excellent) and the issuer credit ratings (ICR) of "a+" of First American Title Insurance Group (First American) (Santa Ana, CA) and its member companies. A.M. Best has also affirmed the debt ratings of "bbb+" and "bbb-" on The First American Corporation's (NYSE:FAF) existing senior debt and preferred securities, respectively, and the ICR of "bbb+" for The First American Corporation. The outlook for all ratings is stable. (See link below for a complete list of the ratings.)

The ratings reflect the group's continuing favorable operating results and significant market presence within the title industry. These positive rating factors are partially offset by execution, integration and market risks posed by recent title-related acquisitions, as well as inherent risks with managing significant premium growth in recent years and the challenge to manage future economic cycles. The outlook is based on First American's favorable operating earnings and solid market position.

The group's positive rating factors are derived from a strong franchise value and a favorable interest rate and real estate market environment. Additionally, the group has invested heavily in advanced computer systems and operating infrastructure, which allows it to process and service business more efficiently. The rating also acknowledges the benefits the group derives from the financial flexibility and operational support from its publicly-traded parent, First American Corporation, which maintains moderate financial leverage and solid fixed charge coverage.

Negative rating factors include a relatively high level of affiliated investments due to several large title-related acquisitions made by the group in recent years. In addition, there are potential integration, execution and market concentration risks associated with these acquisitions.

The group has been absorbing significant growth in premium volume in recent years, resulting in generally increasing underwriting leverage, while revenue and profitability remain subject to changes in interest rates and fluctuations in the real estate markets. The group, however, has national diversification of products and services, which helps dampen the effects of volatility in regional housing markets.

In addition, expense ratios have generally declined due to greater efficiencies derived from its technology investments. Further, a higher concentration of its business associated with the independent agency distribution channel provides the group with a flexible cost structure, which allows it to better manage its expenses during any potential downturns in the real estate market.

For a complete list of First American Title Insurance Group and The First American Corporation's FSRs, ICRs and debt ratings, please visit

Source: A.M. Best Co.

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