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A.M. Best Affirms Ratings for Fidelity, First American

July 31, 2012

A.M. Best Co. announced it has affirmed the financial strength ratings (FSR) of A- (Excellent) and issuer credit ratings (ICR) of "a-" for Fidelity National Financial’s four title insurance subsidiaries as well as First American Financials six title insurance subsidiaries.

Concurrently, A.M. Best has affirmed the ICR of "bbb-" of Fidelity and First American. The outlook for all ratings is stable.

A.M. Best said the ratings reflect Fidelity National Financial Group's adequate capitalization and strong market profile as the largest title insurance group in the United States, having a market share of approximately 35 percent, as of year-end 2011. The group maintains a strong franchise value with Fidelity National Financial Group's leading brands: Fidelity National Title Insurance Company, Chicago Title Insurance Company, Commonwealth Land Title Insurance Company and Alamo Title Insurance Company. In addition, the group benefits from the financial flexibility and operational support from FNF, which maintains relatively modest financial leverage and has made capital contributions to certain group members in recent years.

These positive rating factors are somewhat offset by Fidelity National Financial Group's challenge to manage and sustain operating performance through the current downswing in the real estate cycle. The significant slowdown in the U.S. housing market in recent years has negatively impacted the group's profitability. However, Fidelity National Financial Group continues to undertake aggressive efforts to achieve operating efficiencies, which along with its flexible cost structure, have helped to somewhat mitigate the effects of this down cycle.

The ICR of FNF recognizes the capital strength of its insurance subsidiaries, its modest financial leverage and adequate interest coverage measures.

A.M. Best also said the ratings reflect First American Title Insurance Group's significant market presence within the title industry as well as its significantly improved underwriting leverage measures and risk-adjusted capitalization. The group maintains a strong franchise value and benefits from the financial flexibility and operational support from FAF, which maintains relatively modest financial leverage. First American Title Group's underwriting leverage measures significantly improved in recent years due to overall surplus growth, improved operating results, cost reduction initiatives and declining premium volume.

These positive rating factors are somewhat offset by First American Title Insurance Group's challenging operating environment, which is reflective of ongoing profitability concerns due to a significant softening in real estate markets that has negatively impacted title premium revenues in recent years. While the group's revenue and profitability were both negatively impacted in 2008 due to the prevailing economic environment, operating results have rebounded since 2009. This rebound was mainly due to cost reduction initiatives as First American Title Insurance Group focused on managing the real estate down cycle. In addition, the group took significant reserve strengthening actions in recent years due to unfavorable loss development in prior policy years.

The ICR of FAF recognizes the capital strength of its insurance subsidiaries, its modest financial leverage and solid interest coverage measures.

While A.M. Best believes the ratings for Fidelity and First American are well positioned at their current levels, factors that may lead to positive rating actions include a trend of improved operating results while maintaining favorable underwriting leverage and risk-adjusted capitalization. However, factors that may lead to negative rating actions include a trend of further deteriorating underwriting and operating profitability or the erosion of surplus to an extent to cause a significant rise in the organization's underwriting leverage measures.



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