Fitch Downgrades LandAmerica's IFS to 'BBB+'; Outlook to Negative
August 28, 2008
CHICAGO -- Fitch Ratings has downgraded the Insurer Financial Strength (IFS) ratings of LandAmerica Financial Group's (LFG) insurance subsidiaries to 'BBB+' from 'A-'. Fitch also downgraded LFG's Issuer Default Rating (IDR) to 'BBB-' from 'BBB' and revised the Rating Outlook on all ratings to Negative from Stable. A complete list of ratings follows the end of the press release.
Fitch believes LFG's consolidated balance sheet fundamentals lag national peers at a time in the market cycle where risk-adjusted surplus, financial leverage and reserve redundancy are critical to financial strength ratings.
LFG's financial leverage is considered high for the rating category at slightly greater than 30% at June 30, 2008 after excluding FHLB borrowings at the thrift. LFG renegotiated covenants with its lenders, allowing a fixed charge coverage ratio less than 1.5 times (x) for the second- and third quarter-2008 (3Q'08) and stepping up to 1.5x at year-end (YE) 2008 and beyond.
At YE 2007, LandAmerica's RAC ratio, at 110%, was lower than industry averages of 140% and down significantly from the company's RAC in 2006 of 158%. The Fitch RAC formula quantitatively tests capital adequacy for several risks, including investment risks, reserve adequacy, exposure to large losses, expense leverage and agency risks.
LFG's statutory reserve release during 3Q'08 will effectively eliminate the redundancy between statutory reserves and the actuarial mid-point estimate that favorably impacts the RAC ratio. Further, Fitch expects no growth in statutory surplus during 2008, which when coupled with the impact of the reserve release could translate to a RAC ratio lower than the current 110%.
Fitch has downgraded the following ratings:
- LandAmerica Financial Group, Inc.
- --Long-term IDR to 'BBB-' from 'BBB';
- --Senior debt to 'BB+' from 'BBB-'.
- Commonwealth Land Title Insurance Company
- Commonwealth Land Title Insurance Company of New Jersey
- Land Title Insurance Company of Pasadena
- Lawyers Title Insurance Corporation
- Title Insurance Company of America
- Transnation Title Insurance Company
- --IFS to 'BBB+' from 'A-'.
Source: Fitch Ratings