Fitch Affirms First American Group’s Ratings; Outlook Stable

CHICAGO--(BUSINESS WIRE)-- 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 the 'BBB-' rating of FAF's $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 Sept. 30, 2011 First American reported a GAAP calendar year combined ratio of 96.4% and an accident year combined ratio of 93%. First American also reported a pretax GAAP profit margin of 3.4% 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, 2010First 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 shares 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. As of Sept. 30, 2011 First American owned approximately 8.4% of CLGX carried at approximately $95 million or about 5% 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 In August 2011 FAF publicly announced that it had intentions to purchase CGLX but has withdrawn its offer as of December 2011.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 Sept. 30, 2011 FAF reported a debt-to-capital and a debt-to-tangible capital of approximately 12% and 18.6% respectively. For the same time, FAF reported EBIT based interest coverage of 8.2 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 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 140% or deterioration in capitalization profile that would lead to a material weaker balance sheet.

Fitch has affirmed the following ratings:

The First American Financial Corporation

--IDR at 'BBB';

--Three-year $400 million Revolving Bank Line of Credit 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.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Insurance Rating Methodology' (Sept. 22, 2011).

Applicable Criteria and Related Research:

Insurance Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=651018

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.

Fitch RatingsBrian Bertsch, +1-212-908-0549
Media Relations, New York
[email protected]
or
Primary Analyst:Gerald Glombicki, CPA, +1-312-606-2354
Director
Fitch, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst:Dafina Dunmore, CFA, +1-312-368-3136
Director
or
Committee Chairperson:Brian Schneider, CPA, CPCU, ARe, +1-312-606-2321
Senior Director

Source: Fitch Ratings