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Fitch Affirms First American Group's Ratings; Outlook Stable
June 30, 2017 / 8:27 PM / 5 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: Additional information is available on Applicable Criteria Insurance Rating Methodology (pub. 26 Apr 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT 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. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. 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Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

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