A.M. Best Co. has removed from under review with negative
implications and downgraded the financial strength rating (FSR) to A-
(Excellent) from A (Excellent) and issuer credit ratings (ICR) to “a-”
from “a” of Fidelity National Financial Group (Fidelity) and its
eight title insurance members. In addition, A.M. Best has removed from
under review with negative implications and downgraded the ICR to “bbb-“
from “bbb” of Fidelity National Financial, Inc. (FNF)
(headquartered in Jacksonville, FL) [NYSE: FNF]. A negative outlook has
been assigned to all of the ratings. (Please see below for a detailed
listing of the companies and ratings.)
The ratings of FNF and Fidelity have been removed from under review and
downgraded due primarily to the adverse implications of the acquisition
of the four former title insurance underwriters of the LandAmerica
Financial Group, Inc. (Lawyers’ Title Insurance Corporation, Commonwealth
Land Title Insurance Company, United Capital Title Insurance
Company and LandAmerica NJ Title Insurance Company), which
had been the third-largest national writer of title insurance in the
United States.
While the acquisition has resulted in Fidelity becoming the largest
domestic title insurer with a current market share of approximately 45%,
it also has resulted in a significant increase in underwriting leverage
for Fidelity, which has adversely impacted its risk-adjusted
capitalization. Additionally, the acquisition carries the execution risk
of integrating two large insurance organizations (Commonwealth Land
Title Insurance Company and Lawyers Title Insurance Corporation).
Fidelity’s operating results in 2008 were poor, primarily due to a
significant reserve strengthening action that was undertaken in the
third quarter of 2008 following adverse development of claims from
policy years 2006 and 2007, along with a somewhat more conservative
estimate of expected claims from the 2008 policy year. Operating
performance trends in 2009 will be contingent upon a sustained recovery
of the real estate market, which is the primary driver of title
insurance industry revenue and earnings. Further, while Fidelity in the
past has shown an ability to manage large acquisitions, such as its
acquisition of Chicago Title in 2000, the current negative business
environment poses a greater challenge as it proceeds with the
integration of its newly acquired underwriters.
(For further information, please see A.M.
