June 30, 2017 / 8:24 PM / 2 months ago

Fitch Affirms First American Group's Ratings; Outlook Stable

(The following statement was released by the rating agency) CHICAGO, June 30 (Fitch) Fitch Ratings has affirmed the Insurer Financial Strength (IFS) rating of the First American Title Insurance Companies (First American) at 'A' (Strong). A complete list of members and ratings are attached below. The Rating Outlook for all ratings is Stable. KEY RATING DRIVERS The rating rationale reflects the company's very strong capitalization and leverage, along with FAF's continued strong profitability. The rating also reflects an improving reserve position at FAF that Fitch views as sufficient. Fitch views FAF's capitalization and leverage as being very strong. FAF's risk adjusted capital (RAC) score for year-end 2016 was 188% up modestly from prior year due to an increase in policyholder surplus and reduction in affiliated investments. Fitch anticipates that FAF's RAC score will remain near current levels over the near term. Reported debt-to-capital and debt-to-tangible capital of approximately 19% and 27% respectively at year-end 2016 exceeds median guidelines for FAF's rating category. FAF's profitability is considered strong, with a reported consolidated GAAP pretax operating margin of 8.2% at year-end 2016 down slightly from 8.5% during the prior year. Additionally, title operating margins increased year-over-year from 10.4% in 2015 to 11.3% as of year-end 2016. FAF's profitability benefited from both a reduction in paid title claims as well as an increase in title orders closed. Fitch does note that title insurance revenues are subject to several macroeconomic conditions beyond the control of the company, making expense management critical to sustained profitability going forward. Fitch considers FAF's reserves to be sufficient, and neutral to the rating. Fitch expects FAF reserve position to continue to improve as the company's legacy reserves mature. RATING SENSITIVITIES The following are key rating triggers that could lead to an upgrade: --A solid reserve position such that GAAP reserves develop favorably on a consistent basis; --Improvement in capital strength demonstrated by an increase in RAC score to 200% or greater; --A sustained pretax GAAP operating margin of 12% or better; --Demonstration of greater operating performance stability in the next period of unfavorable mortgage and real estate market cycle. Conversely, the following are key rating triggers that could lead to a downgrade: --Adverse GAAP reserve development in excess of 10% of total reserves; --Sharp deterioration in earnings performance, primarily measured by pre-tax GAAP margins, at a pace greater than peer averages. --A sustained increase in financial leverage above 30%; --A RAC score below 130% or deterioration in capitalization profile that would lead to a material weaker balance sheet. FULL LIST OF RATING ACTIONS Fitch has affirmed the following ratings: First American Financial Corporation (FAF) --IDR at 'BBB+', Stable Outlook; --$700 million revolving bank line of credit due 2019 at 'BBB'; --$250 million 4.3% debt due 2023 at 'BBB'; --$300 million 4.6% debt due 2024 at 'BBB'. Fitch has affirmed the IFS ratings of the following entities at 'A' with a Stable Outlook: --First American Title Insurance Company; --First Title Insurance, PLC.; --Ohio Bar Title Insurance Co.; --First American Title Insurance Company of Louisiana; --First American Title Guaranty Company. Contact: Primary Analyst Douglas R. Baker Associate Director +1-312-606-2354 Fitch Ratings, Inc. 70 W. Madison Street Chicago, IL 60602 Secondary Analyst Gerald Glombicki, CPA Director +1-312-606-2354 Committee Chairperson Martha Butler, CFA Senior Director +1-312-368-3191 Media Relations: Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email: elizabeth.fogerty@fitchratings.com. 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