A.M. Best Upgrades Ratings of First American Financial Corporation and Its Title Insurance Subsidiaries; Revises Outlook to Stable for P/C Insurance Subsidiaries

A.M. Best has upgraded the financial strength rating (FSR) to A (Excellent) from A- (Excellent) and the issuer credit ratings (ICR) to “a” from “a-” of the five title insurance subsidiaries (collectively referred to as First American Title Insurance Group) of First American Financial Corporation (FAF) (Omaha, NE) (NYSE:FAF). These five title insurance subsidiaries are: First American Title Insurance Company, First American Title Insurance Company of Australia Pty Limited (Australia), First American Title Insurance Company of Louisiana (New Orleans, LA), First Title Insurance plc (United Kingdom) and Ohio Bar Title Insurance Company (Columbus, OH). Concurrently, A.M. Best has upgraded the ICR to “bbb” from “bbb-” of FAF. The outlook for the above ratings has been revised to stable from positive.

Additionally, A.M. Best has revised the ICR outlook to stable from positive and affirmed the FSR of A (Excellent) and the ICRs of “a” of First American Property & Casualty Insurance Company and First American Specialty Insurance Company, collectively referred to as First American PC Companies. The outlook for the FSR remains stable. All companies are domiciled in Santa Ana, CA, unless otherwise specified.

The rating actions reflect First American Title Insurance Group’s relatively strong risk-adjusted capitalization, driven by its improved operating results and lower underwriting and affiliated investment leverage, as well as its significant market presence in the title insurance industry. The group maintains a strong franchise value and benefits from the financial flexibility and operational support from FAF, which maintains relatively modest financial leverage and solid interest coverage. First American Title Insurance Group’s underwriting leverage measures have significantly improved from the prior five-year period due to its overall surplus growth, which outpaced premium growth and improved operating results and cost reduction initiatives.

These positive rating factors are somewhat offset by First American Title Insurance Group’s continuing challenges in managing the real estate cycle and areas of significant reserve strengthening actions in recent years. Although revenue and profitability were negatively impacted in 2008 as a result of the prevailing economic environment, which affected the real estate dependent title insurance market, the group has reported a trend of improved operating results beginning in 2009, driven primarily by cost reduction initiatives, as well as general improvement in the housing and real estate markets.

The rating actions of First American PC Companies reflect the reduction of underwriting income achieved over the past two years as a result of large loss activity and areas of modest adverse prior year loss reserve development. While at a somewhat reduced level, the group continues to report positive operating performance and maintains solid risk-adjusted capitalization. These positive results are derived from its strict underwriting discipline and loss control guidelines, which have resulted in consistent underwriting and operating profitability. The ratings also recognize First American PC Companies’ use of multiple distribution channels to market its products. Besides brokers and independent agents, First American PC Companies is able to leverage FAF’s advanced computer systems and title distribution networks to facilitate direct escrow sales of homeowners’ insurance.

Partially offsetting these positive rating factors are First American PC Companies’ geographic concentration and exposure to catastrophic loss events.

FAF’s ICR acknowledges the capital strength of its insurance subsidiaries, its modest financial leverage and adequate interest coverage measures.

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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