Duff & Phelps Assigns 'a-' Consolidated Rating to Fidelity National Financial

Strategic Insights -

Duff & Phelps Credit Rating Co. (DCR) has assigned a consolidated claims paying ability rating of 'a-' (Single-a-Minus) to Fidelity National Financial, Inc. (FNF) based on the evaluation of its title insurance company subsidiaries. This rating follows the acquisition of Alamo Title Insurance Company by FNF in August 1998. The rating outlook is stable.

The DCR has taken a group approach in rating the Fidelity Title Group, considering the management's commitment to support weaker subsidiaries through capital contributions from stronger subsidiaries if needed. This approach has led to the upgrade of the claims paying ability ratings of various subsidiaries, including Fidelity National Title Insurance Company, Fidelity National Title Insurance Company of Tennessee, and Nations Title Insurance of New York Inc., to 'A-' (Single-A-Minus) from 'BBB' (Triple-B).

The upgrade is based on strong earnings performance in 1997 and 1998, reduced financial leverage, and a strengthened consolidated statutory capitalization. The ratings also recognize a stronger commitment from management to operate the company with more conservative financial parameters. The acquisition of Alamo Title provides FNF with greater market share on a national scale and significantly greater market share in Texas.

Key Takeaways:

  • DCR assigned a 'consolidated' claims paying ability rating of 'a-' (Single-a-Minus) to Fidelity National Financial, Inc. (FNF) based on the evaluation of its title insurance company subsidiaries.
  • The rating follows the acquisition of Alamo Title Insurance Company by FNF in August 1998.
  • DCR has taken a group approach in rating the Fidelity Title Group, considering the management's commitment to support weaker subsidiaries through capital contributions from stronger subsidiaries if needed.
  • The claims paying ability ratings of Fidelity National Title Insurance Company, Fidelity National Title Insurance Company of Tennessee, and Nations Title Insurance of New York Inc. were upgraded to 'A-' (Single-A-Minus) from 'BBB' (Triple-B).
  • The upgrade is based on strong earnings performance in 1997 and 1998, reduced financial leverage, and a strengthened consolidated statutory capitalization.
  • The acquisition of Alamo Title provides FNF with greater market share on a national scale and significantly greater market share in Texas.
  • Financial leverage at FNF has declined significantly since 1996, with the debt-to-capital ratio decreasing from 58% to 31% at September 30, 1998.
  • The pro-forma DCR Risk-Adjusted Capital (DCR RAC) ratio for the Fidelity Title Group improves to 175% based on year-end 1997 results, compared to 124% in 1996.
  • The ratings are supported by the consolidated operations' strong reserve position, ancillary service and technology capabilities, fourth leading market share in the title insurance industry, and well-managed operating structure.

Statistics:

  • Financial leverage at FNF declined from 58% to 31% at September 30, 1998.
  • The pro-forma DCR Risk-Adjusted Capital (DCR RAC) ratio for the Fidelity Title Group improved to 175% based on year-end 1997 results, compared to 124% in 1996.
  • FNF's debt-to-capital ratio is 31% at September 30, 1998, when adjusting for subsidiary working capital borrowings and debt related to equipment leasing.
  • FNF's consolidated statutory capitalization improved to 175% based on year-end 1997 results, compared to 124% in 1996.

Sources:

  • Duff & Phelps Credit Rating Co. (DCR) press release, November 12, 1998
  • Fidelity National Financial, Inc. (FNF) announcement, August 1998
  • Title insurance industry data, 1996-1998