A.M. Best Revises Outlook to Negative for Fidelity National Financial, Inc. and Its Title Insurance Subsidiaries
October 30 2008 - 2:25PM
Business Wire
A.M. Best Co. has revised the outlook to negative from stable and
affirmed the financial strength rating of A (Excellent) and issuer
credit ratings (ICR) of �a� of Fidelity National Financial Group
(Fidelity) and its eight title insurance members. In addition, A.M.
Best has revised the outlook to negative from stable and affirmed
the ICR of �bbb� of the parent holding company, Fidelity National
Financial, Inc. (Jacksonville, FL) (NYSE: FNF). (See below for a
detailed listing of the companies and ratings.) The ratings reflect
Fidelity�s favorable capitalization and strong market profile as
one of the largest title insurance groups in the United States.
These positive rating factors are somewhat offset by Fidelity�s
challenge to sustain and manage operating performance through the
current downswing in the real estate cycle, which has resulted in a
significant decline in operating revenue and negative earnings.
Furthermore, Fidelity�s financial leverage measures have increased
recently as evidenced by an increase in its debt/capital ratio to
32% as of the close of third quarter 2008, up from 27% as of the
close of second quarter 2008. Fidelity�s revised rating outlook is
based on the title group�s recent announcement of $262 million in
reserve strengthening due partly to higher than expected adverse
development of claims from policy years 2006 and 2007, along with a
somewhat more conservative estimate of expected claims from the
current policy year. This caused a pre-tax loss of nearly $280
million for third quarter 2008 and is expected to result in a
sizeable operating loss for the full year, as the slowdown in
housing markets continues to pressure revenues and earnings. While
Fidelity�s active management of its flexible cost structure along
with the recent announcement of a 50% reduction in shareholder
dividends is expected to help mitigate the ongoing negative impact
of the current real estate down cycle, the group will be challenged
to achieve positive operating results for the remainder of 2008 and
into 2009. The outlook also reflects pressure on the ratings due to
increased financial leverage as the group has increased borrowings
from its revolving bank credit facility to bolster its liquid
assets following the illiquidity of investment holdings in the
Reserve Primary Fund, a money market fund that had significant
holdings in Lehman Brothers securities. While this increased
leverage is expected to be reduced once holdings in the money
market fund are redeemed, A.M. Best will continue to monitor
Fidelity�s financial leverage and flexibility given the current
environment in the financial markets, which have resulted in
reduced liquidity and access to capital. The FSR of A (Excellent)
and ICRs of �a� have been affirmed 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 of �bbb� has been affirmed for Fidelity National Financial,
Inc. 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.
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