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Fitch Downgrades Fidelity National's Ratings

October 27, 2008

Fitch Downgrades Fidelity National's Ratings

CHICAGO -- Fitch Ratings has downgraded the Issuer Default Rating (IDR) of Fidelity National Financial, Inc. to 'BBB' from 'BBB+' and the insurer financial strength (IFS) ratings of its title insurance subsidiaries (please see complete list below) to 'A-' from 'A'. All ratings were removed from Rating Watch Negative and given a Stable Rating Outlook.

The downgrade reflects FNF's $261 million reserve strengthening taken during the third quarter of 2008. FNF had been less conservative than its national peers, booking expected loss reserves for the policy years 2005-2007. Consequently, FNF's profitability was somewhat overstated during the period, negatively impacting what was seen as a core advantage of FNF relative to peers.

The Fitch Risk-Adjusted Capital Ratio (RAC) as of year-end 2007 for Fidelity Title was 151%, which was above the industry aggregate of 140%. Fidelity Title's RAC ratio benefitted from significant statutory reserve redundancies relative to GAAP reserves. The GAAP reserve strengthening means that the reserve redundancy was overstated and a revised version of Fidelity Title's RAC ratio would actually be much lower.

The Fitch RAC ratio quantitatively tests capital adequacy relative to several risk areas, including investment risks, reserve adequacy and leverage, exposure to large losses, business concentrations, expense leverage and agency-related risks.

FNF's announced halving of its shareholders' dividend to 15 cents per share addressed Fitch's concern that the underlying profitability of the title operations in the current environment did not support the shareholder dividend.

At the close of the third quarter of 2008, debt-to-total capital at FNF was 32%, which currently exceeds FNF's long-term target debt-to-total capital of 20%-25%. The increase in financial leverage is seen as temporary, as FNF borrowed from its revolving bank line to make up for illiquidity in a Lehman Brothers money market fund. The borrowing is expected to be paid down as this matter is resolved in the near future. Financial leverage and general flexibility remain a key rating issue for FNF and the title insurance industry during the current stressed environment.

Fitch has downgraded the following ratings with a Stable Rating Outlook:

  • Fidelity National Financial, Inc.:
    • --IDR to 'BBB' from 'BBB+';
    • --$250 million 7.30% senior note maturing Aug. 15, 2011 to 'BBB-' from 'BBB';
    • --$250 million 5.25% senior note maturing March 15, 2013 to 'BBB-' from 'BBB'.
    • --Unsecured bank line of credit to 'BBB-' from 'BBB'.
  • Fidelity National Title Ins. Co.
  • Ticor Title Ins. Co. of FL
  • Alamo Title Insurance Co. of TX
  • Nations Title Insurance of NY
  • Chicago Title Ins. Co.
  • Chicago Title Ins. Co. of OR
  • Security Union Title Ins. Co.
  • Ticor Title Ins. Co.
  • National Title Ins. Co. of NY
    • --IFS downgraded to 'A-' from 'A'.

Source: Fitch Ratings

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