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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. Best's press release dated December 5, 2008.)
The FSR has been downgraded to A- (Excellent) from A (Excellent) and ICRs to "a-" from "a" with a negative outlook for Fidelity National Financial Group and its following members:
-- Alamo Title Insurance
-- Chicago Title Insurance Company of Oregon
-- Chicago Title Insurance Company
-- Fidelity National Title Insurance Company
-- National Title Insurance of New York, Inc.
-- Security Union Title Insurance Company
-- Ticor Title Insurance Company of Florida
-- Ticor Title Insurance Company
The ICR has been downgraded to "bbb-" from "bbb" with a negative outlook for Fidelity National Financial, Inc.
The FSR of A- (Excellent) and ICRs of "a-" have been affirmed with a stable outlook for Fidelity National Group and its following property/casualty members:
-- Fidelity National Insurance Company
-- Fidelity National Indemnity Insurance Company
-- Fidelity National Property and Casualty Insurance Company
An FSR of A- (Excellent) and ICRs of "a-" have been assigned with a negative outlook for the following new members of Fidelity National Financial Group:
-- Lawyers' Title Insurance Corporation
-- Commonwealth Land Title Insurance Company
-- United Capital Title Insurance Company
-- LandAmerica NJ Title Insurance Company
For Best's Credit Ratings, an overview of the rating process and rating methodologies, please visit www.ambest.com/ratings.
The principal methodologies used in determining these ratings, including any additional methodologies and factors that may have been considered, can be found at www.ambest.com/ratings/methodology.
Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.
SOURCE: A.M. Best Company
A.M. Best Company Analysts Neil Das Gupta, 908-439-2200, ext. 5206 neil.dasgupta@ambest.com or Gary Davis, 908-439-2200, ext. 5665 gary.davis@ambest.com or Public Relations Jim Peavy, 908-439-2200, ext. 5644 james.peavy@ambest.com or Rachelle Morrow, 908-439-2200, ext. 5378 rachelle.morrow@ambest.com
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