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Fitch Ratings has affirmed the 'A-' Insurer Financial Strength (IFS) rating of the First American Title Insurance Companies (First American Group or First American). See below for a complete list of members. Additionally, Fitch has affirmed the 'BBB' Issuer Default Rating (IDR) for First American Financial Corporation (FAF) and has assigned a 'BBB-' rating to FAF's new $600 million revolving credit line and withdrawn the rating on FAF's expired $400 million revolving credit line. The Rating Outlook for all ratings is Stable.
Fitch's affirmation of the current ratings is a reflection of the company's capitalization, profitability, and moderate financial leverage. As of Dec. 31, 2011, First American reported a GAAP calendar year combined ratio of 94% and an accident year combined ratio of 90%. First American also reported a pretax GAAP profit margin of 4.7% for the same time period.
Favorably, First American resolved its lawsuit with Bank of America and Fiserv Solutions Inc. for a pretax GAAP charge of $32.2 million. The lawsuit was seeking damages of $535 million.
Offsetting these positives are concerns about First American's reserve adequacy and concentrated position in CoreLogic, Inc. (CLGX) common stock. On June 1, 2010, First American Financial Corporation became a publicly traded company following its spin-off from its prior parent, which was rebranded to CLGX. As part of the transaction First American received 12.9 million shares of CLGX of which it sold 4 million in April 2011. Approximately two-thirds of the remaining shares are at First American Financial Corp, and the balance is at the First American Title Insurance Company (FATICO) level.
In late August 2011 CLGX announced its plan to explore strategic alternatives, causing the stock to decline materially. Third quarter 2011 results have improved, and CLGX's stock price has rebounded from the August lows but no ultimate plan of action regarding strategic alternatives has been decided.
As of Dec. 31, 2011, First American owned approximately 8.9% of CLGX with a cost basis of $167.6 million and an estimated fair value of $115.5 million or less than 10% of First American's shareholder equity. In August 2011 FAF publicly announced that it had intentions to purchase CGLX but has withdrawn its offer as of December 2011.
At Dec. 31, 2011, FAF reported debt-to-capital and debt-to-tangible capital of approximately 13% and 21%, respectively. For the same time, FAF reported EBIT-based interest coverage of 12.5 times (x).
The following is a list of key rating triggers that could lead to an upgrade:
--An increase in reserve strength and stability;
--A sustained increase in risk adjusted capital (RAC) and traditional capital metrics while maintaining risk profile;
--Sustained calendar and accident year profitability.
The following is a list of key rating triggers that could lead to a downgrade:
--Sustained adverse reserve development;
--Deterioration in earnings, primarily measured by pre-tax GAAP margins, at a pace greater than peer averages.
--An increase in tangible financial leverage above 30%;
--An absolute RAC score below 130% or deterioration in capitalization profile that would lead to a material weaker balance sheet.
Fitch has affirmed the following rating:
First American Financial Corporation (FAF)
--IDR at 'BBB'.
Fitch has assigned the following rating to FAF:
--Four-year $600 million Revolving Bank Line of Credit due 2016 at 'BBB-'.
Fitch has withdrawn the following rating of FAF
--Three-year $400 million Revolving Bank Line of Credit due 2013 at 'BBB-'.
Fitch has affirmed the 'A-' IFS Rating with a Stable Outlook for the following entities:
--First American Title Insurance Company;
--First Title Insurance, PLC.;
--Ohio Bar Title Insurance Co.
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