A.M. Best Revises First American Rating
June 15, 2010
A.M. Best Co. has revised the outlook to stable from negative and affirmed the financial strength rating (FSR) of A- (Excellent) and issuer credit ratings (ICR) of "a-" of First American Title Insurance Group (First American) and its member companies.
A.M. Best also has withdrawn the ICR of "bbb-" as well as the debt ratings of "bbb-" and "bb" on the senior debt and preferred securities of the original holding company, First American Corporation, and assigned an "nr" to these ratings. Concurrently, A.M. Best has withdrawn the "bb" on the capital securities of First American Capital Trust I. These withdrawals follow First American's recent spin off of the insurance related and information related services segments, resulting in two separate holding companies with separate and independent boards of directors as of June 1.
Concurrently, A.M. Best has assigned an ICR of "bbb-" to First American Financial Corporation Inc. The assigned outlook is stable.
First American Financial Corporation is the new parent holding company of the insurance related segment, and it has the improved financial leverage of the new entity. The new parent holding company for the information related segment is Corelogic, which now has the responsibility of all public debt obligations from the former parent holding company, First American Corporation. While the spin off of Corelogic has reduced the product diversification and income streams produced by these non-insurance businesses, it has resulted in a stronger balance sheet for First American Financial Corporation as evidenced by lower debt-to-capital and debt-to-tangible capital ratios as compared to prior to the spin off. Furthermore, First American Financial Corporation also has announced a reduced dividend structure going forward, which should result in greater capital available to support operations.
The revised outlook and rating affirmations of First American are due to its capitalization, which continued to improve in 2009 as compared to 2008 and prior years, A.M. Best reported. This is evidenced by the continuing improvement in its underwriting leverage measures, which has fallen significantly since 2007 due to a combination of surplus growth and declining premium volume. The improvement in surplus was primarily due to a turnaround in First American's operating performance in 2009 from improved operating results, cost reduction initiatives and consistent net investment income as compared to 2008, when the group suffered a significant operating loss due to poor underwriting results.
The growth in First American's surplus of nearly 33 percent in 2009, preceded by nearly 40 percent in 2008, combined with the decline in premium volume of nearly 40 percent from decreased real estate activity over the past two years, has resulted in a significant decline in the group's net premium leverage ratio during this period.
First American also reported a modest underwriting profit in 2009, with both the incurred claims and underwriting ratios improving from 2008. Results in 2009, as in 2008, also benefited from the lack of major reserve strengthening actions, compared to those undertaken in 2006 and 2007. At that time, First American posted over $500 million in additional reserves over an 18-month period primarily due to higher than expected claim development from policy years 2004 to 2006.
The FSR of A- (Excellent) and ICRs of "a-" have been affirmed for First American Title Insurance Group and its following members:
- First American Title Insurance Company
- First American Title & Trust Company
- First American Title Insurance Company of Australia Pty Limited
- First American Title Insurance Company of New York
- Title Insurance Company of Oregon
- First American Title Insurance Company of Louisiana
- First Title Insurance plc (U.K.)
- Ohio Bar Title Insurance Company
- Pacific Northwest Title Insurance Company Inc