Fitch Ratings Affirms First American Corp.; Outlook Positive

March 3, 2005

CHICAGO--(BUSINESS WIRE)-- After last week's announcement that The First American Corporation (FAF) acquired United General Title Insurance Company (UGTIC), Fitch Ratings has affirmed all the ratings of FAF and its title insurance companies (The First American Group). All ratings are listed below. The Rating Outlook for all ratings is Positive. The affirmation of the ratings and Positive Outlook reflect Fitch's belief that the UGTIC acquisition aligns well with The First American Group's strategy to increase market share. Fitch is slightly concerned that the business being acquired has lower profit margins and retention risk. However, these concerns are assuaged by the size of the transaction, which is small when compared with FAF's total results.

The current ratings are based on the company's strong and improving positions in title insurance and real estate ancillary services; solid operating performance during the recent strong real estate market, which resulted in substantial growth in policyholders' surplus; strong capitalization, including the second largest policyholders' surplus of the top five national companies; and below-average operating leverage. Offsetting these positives is higher-than-average intangible equity and above-average affiliated investments that reduce liquidity.

Fitch believes financial leverage is moderate and in line with expectations for the rating category. FAF's debt-to-capital ratio is expected to be managed long-term at approximately 20% to 25%, with fixed-charge coverage at or above 8 times (x). At Dec. 31, 2004, FAF's debt-to-total capital ratio (including minority interest) was approximately 19.2%, debt plus preferred securities to total capital ratio was 22.4% and fixed-charge coverage was above 15x.

The First American Group is currently the second largest provider of title insurance in the U.S. based on 2004 operating revenue (market share of approximately 24% based on operating income and premium).

FAF is a publicly traded holding company based in Santa Ana, CA with GAAP assets of $5.7 billion and shareholders' equity of $2.5 billion at Dec. 31, 2004. FAF is a leading provider of real-estate related services to property buyers and mortgage lenders with operations in financial services (77% of GAAP operating revenues) and information technology (23% of GAAP operating revenue).

The following ratings are affirmed by Fitch with a Positive Rating Outlook:

  • The First American Corporation
    • Senior debt at 'BBB'.
  • First American Capital Trust
    • Trust-preferred securities at 'BBB-'.
  • First American Title Insurance Company
    • Insurer financial strength at 'A'.
  • First American Title Insurance Co. of New York
    • Insurer financial strength at 'A'.
  • First American Title Insurance Co. of Texas
    • Insurer financial strength at 'A'.
  • First American Title Insurance Co. of Oregon
    • Insurer financial strength at 'A'.
  • Land Title Insurance Co. of St. Louis
    • Insurer financial strength 'A'.
  • Ohio Bar Title Insurance Co.
    • Insurer financial strength at 'A'.
  • Port Lawrence Title & Trust Co.
    • Insurer financial strength at 'A'.
  • First American Title Insurance Co. of North Carolina
    • Insurer financial strength at 'A'.
  • Mortgage Guaranty & Title Co.
    • Insurer financial strength at 'A'.
  • Massachusetts Title Insurance Co.
    • Insurer financial strength at 'A'.
  • First American Title Insurance Co. (UK) PLC.
    • Insurer financial strength at 'A'.
  • Western National Title Insurance Company
    • Insurer financial strength at 'A'.

Source: Fitch Ratings


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