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A.M. Best Upgrades Ratings of Most of Fidelity’s Title Subsidiaries; Affirms First American Ratings

July 29, 2014

A.M. Best has updated and affirmed ratings for title insurance subsidiaries of Fidelity National Financial Inc. and First American Financial Corp.

A.M. Best has upgraded the financial strength rating (FSR) to A (Excellent) from A- (Excellent) and the issuer credit ratings (ICR) to “a” from “a-” of Fidelity National Title Insurance Company, Chicago Title Insurance Company , Commonwealth Land Title Insurance Company and Alamo Title Insurance. The outlook for all the above ratings has been revised to stable from positive. These four domestic title insurance companies are subsidiaries of Fidelity National Financial.

In addition, A.M. Best has revised the outlook to stable from positive and affirmed the FSR of A- (Excellent) and the ICR of “a-” of FNF’s separately rated title insurance subsidiary, FNF Title Insurance Company Ltd . Concurrently, A.M. Best has withdrawn the ICR of “bbb-” of FNF following its acquisition of Lender Processing Services, Inc. (LPS), resulting in FNF primarily engaged in businesses for which A.M. Best does not have a rating methodology. According to A.M. Best, the rating upgrades reflect Fidelity National Financial Group’s improved risk-adjusted capitalization, driven by improved operating results and lower underwriting leverage measures, its strong market profile as the largest title insurance group in the United States, having a market share of approximately 31 percent, as of first quarter 2014, and the significant improvement in its underwriting performance that has occurred over the past two years. In addition, the group achieved surplus growth in excess of 20 percent in total, over the past five years, despite depressed housing and real estate market conditions, mainly due to aggressive expense management initiatives, which allowed the enterprise to continue reporting positive operating results throughout that period.

A.M. Best reported that these positive rating factors are somewhat offset by Fidelity National Financial Group’s challenge to manage and sustain operating performance through the current macroeconomic environment, which has negatively impacted the real estate dependent title insurance industry and the housing market as a whole.

“The significant slowdown in the U.S. housing market negatively impacted the group’s profitability, as evidenced by the significant decline in its revenue during the five years ending 2011,” A.M. Best said in a release. “However, Fidelity National Financial Group undertook aggressive efforts to achieve operating efficiencies, which along with its flexible cost structure, helped to somewhat mitigate the effects of this down cycle and has positioned the group to take advantage of an improved housing market.”

Meanwhile, A.M. Best has affirmed the financial strength rating (FSR) of A- (Excellent) and the issuer credit ratings (ICR) of “a-” for five of First American’s title insurance subsidiaries, including First American Title Insurance Company, First American Title Insurance Company of Australia Pty Limited, First American Title Insurance Company of Louisiana, First Title Insurance plc and Ohio Bar Title Insurance Company. The outlook for all the above ratings is positive.

A.M. Best reported that the ratings reflect First American Title Insurance Group’s adequate risk-adjusted capitalization, driven by its improved operating results and lower underwriting and affiliated investment leverage, as well as 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,” the ratings firm reported. “First American Title Insurance Group’s underwriting leverage measures have significantly improved from the prior five-year period due to its overall surplus growth, which outpaced premium growth, improved operating results and cost reduction initiatives.”

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