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Ratings Affirmed for Several Underwriters

December 11, 2012

Fitch Ratings affirmed the financial strength rating for the First American Title Insurance Companies and Old Republic International’s title subsidiaries, while Demotech affirmed Attorneys Title Guaranty Fund’s financial stability rating.

First American

Fitch Ratings affirmed the Insurer Financial Strength (IFS) rating for the First American Title Insurance Companies and the Issuer Default Rating (IDR) for First American Financial Corp. (FAF). The IFS is currently A- and the IDR is currently BBB. The outlook for all ratings remains positive.

Fitch said the affirmation of the ratings is a reflection of First American’s capitalization, profitability and moderate financial leverage. Fitch looks at FAF’s capitalization on both a risk-adjusted and nonrisk-adjusted basis. By both measures, First American’s capital is amongst the highest in Fitch's title insurance rated universe.

Since the previous rating review, FAF finalized the complete sale of CoreLogic Inc. stock in third quarter 2012 for $207.9 million, which Fitch viewed as a favorable development. This move resulted in a realized gain of $40.4 million. Additionally, open residential orders are up 27 percent in third quarter 2012 compared to third quarter 2011 and commercial revenue is up 19 percent to $106.3 million for the same time period.

Fitch remains concerned with First American's reserve adequacy and the potential for a slowdown in mortgage originations in the second half of 2013. Reserves have developed unfavorably so far in 2012 (by $24.4 million), which continues a trend for FAF of adverse reserve developments the last few years. The development so far in 2012 was primarily related to a guarantee valuation product sold in Canada which the company continues to sell but with altered terms and conditions. For 2011, the company’s reserves were adversely impacted by $112 million.

Fitch has affirmed the 'A-' IFS Rating with a Positive Outlook for the following entities:

  • First American Title Insurance Company
  • First Title Insurance, PLC
  • Ohio Bar Title Insurance Co.
Old Republic Fitch Ratings has removed from Rating Watch-Negative and upgraded Old Republic International Corporation's (ORI) holding company ratings by two notches, including the senior debt rating to 'BB+' from 'BB-'. Fitch has also affirmed and removed from Rating Watch-Negative the Insurer Financial Strength (IFS) ratings of ORI's insurance subsidiaries at 'A-'. The Rating Outlook is Stable.

These rating actions reflect Fitch's reduced concern surrounding the possibility of an acceleration of ORI's outstanding debt, following the approval of Republic Mortgage Insurance Company's (RMIC) proposed corrective plan by the North Carolina Department of Insurance (NCDOI).

On Dec. 3, 2012, ORI announced that the NCDOI issued a Final Order approving the corrective plan submitted by RMIC on Sept. 14, 2012. Fitch believes the extension of regulatory supervision of RMIC until Dec. 21, 2021 will likely allow ORI to avoid a covenant breach and related debt acceleration, since RMIC then more likely avoids bankruptcy, insolvency, rehabilitation or reorganization.

Fitch removed from Rating Watch Negative and affirmed the following ratings with a Stable Outlook:
  • American Guaranty Title Insurance Co.
  • Mississippi Valley Title Insurance Co.
  • Old Republic National Title Insurance Co.
Attorneys Title Guaranty Fund

Demotech Inc. affirmed Attorneys Title Guaranty Fund’s (ATGF) Financial Stability Rating (FSR) of A, Exceptional. ATGF demonstrated its proprietary web-based automated title insurance distribution and underwriting platform, Electronic Policy Insurance Capability (EPIC).

"EPIC has the necessary attributes to instill confidence in the title and settlement process from consumers, lenders, regulators and reinsurers while simultaneously protecting the fundamental integrity of the independent agency system,” said Joe Petrelli, president of Demotech. “EPIC embraces and enhances the attributes inherent in the independent agency system, instead of changing title underwriting to mechanize the process or otherwise detract from the efforts of the independent agents."



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