A.M. Best Downgrades Financial Strength and Debt Ratings of First American Assigns Issuer Credit and Debt Ratings
June 30, 2005
OLDWICK, N.J.--(BUSINESS WIRE)-- A.M. Best Co. has downgraded the financial strength rating to A (Excellent) from A+ (Superior) and has assigned issuer credit ratings (ICR) of "a+" to First American Title Insurance Group (First American) (Santa Ana, CA) and its member companies. A.M. Best has also downgraded the debt ratings to "bbb+" and "bbb-" from "a-" and "bbb" on First American Corporation's (NYSE: FAF - News) existing senior debt and preferred securities, respectively. Additionally, A.M. Best has assigned a debt rating of "bbb+" to First American Corporation. All ratings have a stable outlook. (See link below for a complete list of the ratings.) The rating downgrades reflect increased pressure on First American's capitalization caused by several recent large title-related acquisitions, including Pacific Northwest Title Insurance Company and United General Title Insurance Company. These acquisitions increased group's non-admitted assets and represent greater asset concentration, as affiliated investments form a significant portion of First American's invested asset base. As the group has continued to create market share opportunities both organically and through acquisitions, it also faces rising underwriting leverage, the inherent risks of absorbing significant premium growth and the challenge of managing future economic cycles.
Although current conditions in the real estate markets are favorable, A.M. Best believes that due to the lack of asset diversification, there are downside risks to First American's title operations should conditions in the real estate markets deteriorate, causing declining demand for title products.
First American's overall ratings reflect its favorable operating performance and significant market presence as one of the leading title insurance groups in the United States. First American's strong franchise value has allowed it to successfully leverage the current favorable real estate market conditions. Additionally, the group has invested heavily in technology and operating infrastructure that should enable it to process and service business more efficiently. These technology investments have enabled First American to develop a global platform from which to deliver its services as reflected in its growing ability to process operations from offshore locations, which represents potential future cost savings. First American has also nationally diversified its products and services, which helps to somewhat mitigate the effects of volatility in regional housing markets. In addition, independent agency operations form a significant part of the premium distribution network, which affords the group some flexibility to control costs in the event of a potential downturn in the real estate market.
Finally, the ratings also acknowledge the benefits First American derives from the financial flexibility and operational support from its publicly-traded parent, First American Corporation.
For a complete list of First American Title Insurance Group and First American Corporation's financial strength, issuer credit and debt ratings, please visit http://www.ambest.com/press/062906firstamerican.pdf.
Source: A.M. Best
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