Best’s News & Research Service - October 22, 2015 12:07 PM (EDT)
A.M. Best Affirms Ratings of Most of Fidelity National Financial, Inc.’s Title Insurance Subsidiaries
Oldwick //BestWire// - A.M. Best has affirmed the financial strength ratings (FSR) of A (Excellent) and the issuer credit ratings (ICR) of “a” of Fidelity National Title Insurance Company (Santa Barbara, CA), Chicago Title Insurance Company, Commonwealth Land Title Insurance Company (both domiciled in Omaha, NE), National Title Insurance of New York, Inc. (New York, NY) and Alamo Title Insurance (San Antonio, TX) (collectively referred to as the Fidelity National Financial Group). The outlook for all the above ratings is stable. These five domestic title insurance companies are subsidiaries of Fidelity National Financial, Inc. (FNF) [NYSE: FNF].
In addition, A.M. Best has downgraded the FSR to B++ (Good) from A- (Excellent) and the ICR to “bbb” from “a-” for FNF’s separately rated title insurance subsidiary, FNF Title Insurance Company Ltd. (FNF Malta) (Malta). The outlook for both ratings is stable. Concurrently, A.M. Best has withdrawn the ratings of FNF Malta in response to the company’s request to no longer participate in A.M. Best’s interactive rating process.
The rating actions reflect Fidelity National Financial Group’s favorable risk-adjusted capitalization, driven by improved operating results and lower underwriting leverage measures, its strong market profile as the largest title insurance group in the United States, having a market share of approximately 33%, as of second-quarter 2015, and the significant improvement in its underwriting performance that has occurred over the past several years. In addition, the group achieved significant surplus growth in excess of 90% in total, over the past five years, despite depressed housing and real estate market conditions, mainly due to aggressive expense management initiatives, which allowed the enterprise to continue reporting positive operating results throughout that period.
These positive rating factors are somewhat offset by Fidelity National Financial Group’s challenge to manage and sustain operating performance through the current macroeconomic environment, which has negatively impacted the real estate dependent title insurance industry and the housing market as a whole. The significant slowdown in the U.S. housing market has negatively impacted the group’s profitability, as evidenced by the significant decline in its revenue during the five years ending 2011. However, Fidelity National Financial Group undertook aggressive efforts to achieve operating efficiencies, which along with its flexible cost structure, helped to somewhat mitigate the effects of this down cycle and has positioned the group to take advantage of an improved housing market.
The ratings downgrade for FNF Malta reflects the diminished business profile of the company as a result of its curtailed premium writings over the past two years and consequential reduced importance to the enterprise as a whole.
A.M. Best will continue to analyze FNF to assess the potential impact, negative or positive, its operations and performance may have on its interactively rated title insurance subsidiaries. On Jan. 2, 2014, FNF completed the purchase of LPS, which resulted in an increase in its debt-to-total capital ratio since the company utilized debt to fund the transaction, along with the assumption of outstanding debt at LPS. In addition, debt-to-tangible capital increased significantly due to the relatively large amount of goodwill and intangibles associated with the transaction. However, to date, management has made significant progress toward its stated objective to return its debt-to-total capital in line with historical levels over the intermediate term. In addition, FNF’s history of successfully acquiring and integrating companies within its stated guidance and objectives, somewhat mitigates these concerns.
This press release relates to rating(s) that have been published on A.M. Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please visit A.M. Best’s Ratings & Criteria Center.
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