A.M. Best Revises Outlook to Positive for Fidelity National Financial, Inc. and Its Title Insurance Subsidiaries
OLDWICK, N.J.--(BUSINESS WIRE)-- A.M. Best Co. has revised the outlook to positive from stable and affirmed the financial strength rating of A- (Excellent) and 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) and Alamo Title Insurance Company (San Antonio, TX) (collectively referred to as the Fidelity National Financial Group). These four domestic title insurance companies are subsidiaries of Fidelity National Financial, Inc. (FNF) (headquartered in Jacksonville, FL) (NYS: FNF) . In addition, A.M. Best has revised the outlook to positive from stable and affirmed the FSR of A- (Excellent) and the ICR of "a-" of the separately rated title insurance subsidiary of FNF, FNF Title Insurance Company Ltd. (FNF Malta) (Floriana, Malta). Concurrently, A.M. Best has revised the outlook to positive from stable and affirmed the ICR of "bbb-" of FNF.
The positive outlook reflects Fidelity National Financial Group's improved risk-adjusted capitalization, driven by improved underwriting results and lower underwriting leverage measures, as well as its strong market profile as the largest title insurance group in the United States, having a market share of approximately 34%, as of year-end 2012. In addition, the group achieved surplus growth in excess of 25%, in total, over the past five years, despite the depressed housing and real estate market conditions, mainly due to aggressive expense management initiatives, which caused the expense ratio to decrease over nine points and allowed the enterprise to continue to report positive operating results over the past four years. Fidelity National Financial Group also benefits from the financial flexibility and operational support of FNF, which maintains relatively modest financial leverage and has made capital contributions to certain group members in recent years.
These positive rating factors are somewhat offset by Fidelity National Financial Group's challenge to manage and sustain operating performance through the current downswing in the real estate cycle; although, recently, housing and real estate markets have shown some improvement. The significant slowdown in the U.S. housing market 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 it to take advantage of an improved housing market.
The ratings of FNF Malta reflect its adequate risk-adjusted capitalization and the significant reinsurance support provided by its parent, Chicago Title Insurance Company.
FNF's ICR recognizes the capital strength of its insurance title subsidiaries, its modest financial leverage and adequate interest coverage measures. On June 6, 2013, A.M. Best commented that the ratings of FNF and its core title insurance subsidiaries remained unchanged following its announcement that it agreed to acquire Lender Processing Services, Inc. (LPS) (Jacksonville, FL) [NYSE: LPS], a leading provider of integrated technology, data and services to the mortgage lending industry in the United States. Although the proposed transaction will expose FNF to a level of execution risk and will increase its financial leverage (but will support all current rating levels), as a result of the increased debt that will be utilized to fund the transaction as well as the assumption of outstanding debt at LPS, FNF's history of successfully acquiring and integrating companies within stated guidance and objectives, somewhat mitigates this concern. As such, A.M. Best expects financial leverage will return to historical norms over the intermediate term.
While A.M. Best believes FNF and its operating companies are well positioned at their current rating levels, factors that may lead to positive rating actions include a sustained trend of improved operating results, while maintaining favorable underwriting leverage and risk-adjusted capitalization. However, factors that may lead to negative rating actions include a trend of deteriorating underwriting and operating profitability, the erosion of surplus to such an extent that it causes a significant rise in underwriting leverage measures and/or the acquisition of LPS causes a prolonged period of increased leverage measures or is not successful.
The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process. Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visitwww.ambest.com.
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A.M. Best Co.
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